If you’re troubled about your credit scores, there are ways to get back on track and increase your scores in a short time. Of course, this is going to take some work and effort on your part, but it will definitely be worth it. Here’s why. Lenders base their interest rates on many factors. One of those is credit score. If your score falls in the 640 – 660 range, your interest rate may be higher than someone who has a score of 661 – 700. This small difference in score could cost you tens of thousand of dollars over the life of your loan. Persistance on your part can and will help you now and in the long run. Listed below are some tips regarding increasing your credit score and the steps to take.
Also, let me say that you “build” your credit, you don’t lose your credit. For instance, your credit score does not start at 850 and then if you make a mistake it begins to tumble. Your credit starts at the bottom and as you acquire different sources of credit and make those payment s on time, your score increases and you are establishing your credit profile.
First, if you have a Visa, MasterCard, AMEX, Belk’s, Kohl’s, BP, Exxon, JC Penny, and a Discover card, you are headed in the wrong direction. The magic number of cards to have is three. Also, taken into account is the age of the cards. The longer those cards have been open, the more attractive your credit looks. Most credit cards have a credit limit assigned to them. It is a smart idea to get those balances down to 25% or lower of the credit limit. For example, if you have a credit card with a $1000 limit, you need to keep that balance at $250 or less. If you have a couple of cards that you never use, then use them and keep them active. Even if you just buy a pack of gum every few months, this will show the credit bureaus that you have access to credit, you are using that credit, and you are paying it on time monthly.
Second, if you have Collection accounts on your credit report, this will negatively affect your scores. Now, collections can be complicated. The reason is that the scoring software that credit bureaus use may go off of the date of last activity.What this means is that if you pay off a collection, the company reports the collection as paid, it can actually make your score drop. When you speak to the collection agency, make it a condition of you paying off your collection account that they stop reporting to the credit bureaus. As always, get this in writing.
Third, if you have any past due accounts, catch them up immediately. Once caught up, don’t be late again.
Fourth, you are entitled to a free credit report every year. Put that on your calendar! Go to http://www.annualcreditreport.com and request your report (for free) from each bureau. If there are any trade lines on your report that are not yours, you need to dispute them and get them removed from your report. Also, look to make sure that your open credit lines (credit cards, etc) are reporting a credit limit. For example, if you have a MasterCard with a $1000 balance and the credit limit is not showing on the report, you are considered maxed out and at 100% of your credit line. If your credit limit is actually $5000 and that is showing on the report, you are only at 20%. Big difference in score.
Take charge of your credit. It will take some work and probably some patience, but it could keep a lot of money in your pocket. Also, it is always a good idea to start this process well in advance of a home purchase. If you need some guidance, don’t hesitate to let me know.
Kentucky First-Time Home Buyer Programs | USDA, FHA, VA & KHC Loans 