Mortgage rates are at historic lows as real estate prices remain lower than they have been in over a decade, so buying a home should be easy, right? Not so. For those of you that have attempted to get a mortgage, you know it is anything, but easy to pass the evaluation process. Lending institutions are taking no chances and are only approving loans for people that have excellent credit.
A credit score at 680 was once considered an A rating; not any more. Banks are now looking to approve loans for individuals with at least a 740 average credit score. And, one late bill can lower your score by 40 points. Ouch! So, how do we get our credit score up and what steps should we take to repair our credit?
I spoke with one of the leaders in the credit repair industry about this topic Elizabeth Karwowski, the founder of a company called, Get Credit Healthy, Inc., a consumer advocate organization which helps individuals get back on the right path to great credit health. Her firm deals with the credit agencies in finding items that are downgrading your credit while dealing with disputes.
Elizabeth (pictured here) shares with us the seven tips to improve our credit scores:
Pay Your Bills on time, every time
35% of your credit score is determined by how you pay your bills. Responsible borrowers who make their payments when contracted to do so carry favor with leaders. On time, every time payments demonstrate a personal commitment to pay down your debt. It is the largest single factor used to determine your credit score and the one lenders consider more than any other.
Manage Your Credit Limit or Credit Balance or Both
When establishing healthy credit, it is recommended that you use only 30% of your credit line. Lenders view this pattern of financial restraint positively and are more likely to extend your credit, raise your credit limit and grant you favorable terms. This applies to all of your credit cards. To manage your credit/financial health, it is important to ask your creditor when they report to the Credit Bureaus. You make have made your monthly payment prior to the due date, but your creditor has already reported you having a large credit balance over your credit limit. Your credit balance has not been properly noted and can affect your credit score.
Don’t Close Your Credit Cards
The temptation to use credit cards drives some people to close their accounts thus avoiding the dreaded monthly bill. This action is not always the best way to rebuild your credit, as it eliminates a record of positive credit history which accounts to 15% of your credit score. Restraint in using these cards and better financial management is the way to go.
Don’t “Pull” Your Credit Report
When a request is made to view your credit file, it is called a “pull”. There are two types of “pulls”, hard and soft. “Soft pulls” are usually preformed for promotional purposes or by you requesting noted information on your credit file and have no impact on your credit score. “Hard pulls” are those requested by creditors who have by law, “a permissible purpose.” They appear as an “inquiry” on your credit file. All inquiries made can be viewed by other creditors and make up 10% of your credit score. New inquiries should be held to a minimum.
Have a Variety of Credit Types
Strive for a mix of revolving credit including credit cards and installment loans, like car payments. This makes up to 10% of your score. When a lender does a “hard pull” of your credit file they want to see the history of payment on these various accounts. They represent your dedication to pay on time.
Learn the Proper Way to Deal with Collection Accounts
Quite often, it is a mistake to make a payment on an account that is in collection because it “re-ages” a debt. “Re-age” in credit language means making a debt appear to be more current than it really is. This can have a huge negative impact on your credit file. Consult a professional before considering this step.
Rebuild Your Credit and Raise Your Score
Re-establishing a responsible credit history is the key to raising your credit score. There are ways to open new credit accounts that allow you to do this. At the same time it will eliminate inaccuracies on your credit file and go a long way in raising your FICO score.
Rebuilding your credit is a must in today’s economy. It will give you freedom to make wiser financial decisions that will affect your future and set you up for long-term financial solvency. Repairing your credit takes an enormous amount of time. Consider hiring a professional to help you through the process. It may be the best investment you make in your life.