​Credit can be a hassle, especially when it comes time to buy a car or house. If you’re like most Americans, you only check your score when you are starting to get ready to make a big purchase, like a house or a car. That could be a bad idea, since 25% of credit reports contain an error. Thankfully there are ways to check your credit report for free. Law requires that each of the big three credit bureaus (Transunion, Equifax, and Experian) give you a free copy of your credit report (once a year). If you space your orders out every few months, you can monitor your credit for free for the whole year. Just go to Annualcreditreport.com for your free credit report. This report will not include your credit score, but this is easy for you to obtain through the bureaus.

If you are getting ready to buy a house, it is important for you to know where you stand before beginning the lending process. Lenders rely on the FICO score (commonly known as a credit score) to determine credit worthiness. It can be hard to understand what will impact your credit score, but the FICO is calculated from 5 main pieces of information:

1. Your payment history 35%
2. Amounts owed 30%
3. New credit 10%
4. Length of credit history 15%
5. Credit mix 10%

So what do you need to do to make sure that your FICO score is where it needs to be to get approved for a mortgage or car loan? If you follow these 5 steps below, then chances are that your credit will improve and you will be on the right track to landing that house or car loan.

Step 1: Check your credit report!
Don’t wait until you are heading to the bank to find out about your FICO score. Knowing what is on your credit report is vital, since, if you are one of the 25% of Americans with an error on your report, it can take time to resolve. If you do find an error, be sure to contact the credit bureaus immediately, and be prepared to send in any evidence you might have to get things cleared up.

Most people worry about fluctuations in their score, but it’s more important to make sure that all of the accounts listed in the report are actually yours. Make sure that the address, social security number, and name are correct, and that there are no fraudulent accounts or incorrectly reported balances.

Step 2: Get Current
If there are any debts that are outstanding or past due, getting current will do the most for your credit score. Paying on time, every time is a key factor of your credit score. Lenders don’t like to see late and missed payments because it makes you a risk. Negative information stays on your credit report for 7 years, and bankruptcies for 10 years. Paying off debt will always be better than just moving it around, so don’t be tempted to just open a new account to transfer the balance. New accounts can make your credit score go down until there is payment history on file.

Step 3: Keep Your Balances Low
The best thing you can do is to pay everything in full every month, but sometimes that isn’t possible. Always try to keep your credit card balances to less than 30% of the credit limit. This can be hard to do when you are first starting out and trying to build your credit. If that’s the case, try to pay the balances in full every month, or as close to it as possible.

Minimum payments are the enemy when it comes to keeping your credit score high. Not only will it cost you more over time as the interest gets added, but it doesn’t make you look like a good candidate for future lending. Remember, negative information stays on your credit report and impacts your credit score for 7-10 years. So do everything you can to keep in the positive!

Step 4: Keep Positive Accounts
Length of history matters! It can be tempting to close accounts that have been paid off, but, believe it or not, this can negatively impact your credit score. You want as many examples of good payment history in your corner as possible. On the flip side, don’t open multiple accounts in a short period, as this will make your credit score go down temporarily. Whether it stays down is a matter of how you handle payments on those new accounts.

Step 5: Start Gardening
No, I don’t mean plants. Gardening your credit simply means that you don’t open new accounts or do anything that will result in a hard inquiry on your credit report. If you’re planning on buying a car or house, this is important. The number of hard inquiries and new accounts on your credit report will impact your FICO score when it comes time to purchase. The more recent those types of inquiries are, the less likely that you will be approved for a major purchase.

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