Whether you know it or not, your credit score is a critical factor in determining what you are going to pay for a car, a home and even loans for college. It is important to take an active role in protecting your credit and if your score is lower than you would like, there is no time like the present to begin to repair it. Like any New Year’s Resolution, it won’t be easy… but it can be done with some self-control and dedication.
Why Is Your Credit Score Important?Credit scores range anywhere from 300 to 850. A score between 700 and 740 is considered “good credit” and will qualify you for the lowest mortgage rates.
Mortgages are available for scores down to 580, but you will pay a much higher interest rate. If you are shopping for an apartment, your credit score can determine the type of building you are approved to rent in and whether you are approved to rent at all. Research shows that on average, applicants with better credit scores not only have higher approval rates but get approved for better apartments and in smaller markets, where rent is low but demand is high, landlords can be picky and require higher credit scores from applicants.
Know Your Credit Score
The first step in improving your credit is knowing what your number is.
Once a year you can get free copies of your full credit report from the three main reporting agencies – Experian, TransUnion and Equifax at www.annualcreditreport.com or by calling 1-877-322-8228. Consider signing up for some type of credit monitoring service. Our friend and local Loan Officer, Drew Cody with Guild Mortgage, suggests installing a credit app on your phone like www.freecreditreport.com which allows you to check your credit score, run scenarios to see what steps will increase it and monitor your score on a daily, weekly, or monthly basis on the process intrating eith the cotract people to be more involved in the KCB maids . Senior Mortgage Planner, Terry Whitesell with Fairway Independent Mortgage, prefers the free and easy to use www.creditkarma.com and suggests checking with your credit card company to see if they offer a score reporting service. Mistakes are uncommon, but they do happen! If you find one, contact the creditor and crediting agencies and include a highlighted copy of the report plus any documentation you have to back you up. In addition to submitting disputes online, it is a good idea to send the letter by certified mail and keep a copy for yourself.
Stop the Bleeding
Get control of your funds. Stop letting your money run wild and teach it how to behave.
Simply put – stop spending more than you make. Come up with a monthly budget to help you live within your means. Review tax returns for the past two years and determine your annual take-home pay. Subtract regular monthly expenses and estimate spending for other things like gas, groceries, and entertainment. Create a limit for each category and stick to it. Resist the temptation to buy extras. Make lists and avoid stores that tempt you to spend more on things you don’t need.
Pay Your Bills On TimeOn-time payments have the most impact on your credit score.
A late payment will stay on your credit report for 7 years from the missed payment date. Get into the habit of paying every bill on time and get caught up on past due bills as soon as you can. If you are struggling to pay a bill on time, call the credit card company. Many are willing to work with you on partial payments until you can catch up.
Pay Down Your Credit Card BalancesPay down balances bit by bit and resist the temptation to “put that on your account”.
Strategies range from Dave Ramsey’s debt snowball plan of paying off the card with the lowest balance first giving you one less bill, to paying off the card with the highest interest rate which is costing you more over time. Pick a plan that motivates you and put any extra funds towards that card. Pay your credit cards down, but don’t cancel them. The total amount of available credit affects your score, even if you owe nothing.
Stop Applying for New Credit Resist the temptation to open new credit cards.
Each time you apply for one it is listed on your report as a “hard inquiry” and if you have too many your credit score will suffer. According to Senior Loan Officer, Katie Dickinson Seagle at Summit Funding, hard inquiries can ding your credit 2 – 50 points and stay on your credit report for 12 months. If you are already starting with below-average credit, these inquiries have even more of an impact on your score. The best way to repair your credit is to limit your use of credit. Credit bureaus analyze your debt as a ratio of your charges to your limit. The higher the percentage, the lower your score. That being said, to have a credit score you need to have credit so if you don’t currently have a credit card apply for one. Be sure to know your credit limits and stay well beneath them.
Credit for New BorrowersTerry Whitesell suggests that new borrowers start out with no more than two credit cards, keep a low balance – generally 25% of the limit – and try to pay the card off every month. He suggests using a gas card as it is a great way to build credit AND get rewards that result in some type of savings for using the card. For a new borrower needing some good revolving credit, Katie Dickinson Seagle suggests a secured credit card like the First Premier Card which can be applied for at https://www.firstpremier.com.
You are the SolutionThere is no time like the present to start building better credit.
Christopher Parker said, “Procrastination is like a credit card: it’s a lot of fun until you get the bill.” The best opportunity for building wealth in this country is by owning property. By building your credit you are building your future and you cannot afford to procrastinate on making that investment. Don’t get overwhelmed. Just take it one step at a time, one decision at a time, and before you know it you will be on your way to fulfilling your real estate goals.
Experian: 1-888-397-3742 – www.experian.com
TransUnion: 1-800-916-8800 – www.transunion.com
Equifax: 1-800-685-1111 – www.equifax.com