Tips to Improve your Credit Score
If you feel that the dream of home ownership has slipped
through your fingers because of your credit score, you are not alone. Around
the country, millions of people have found themselves facing the consequences
of poor credit scores. The reasons can be numerous and range from a loss of
employment to being snowed in by mounting debts. Regardless of the reason, few
people have escaped and now face everything from late payments to foreclosures
and bankruptcies. Having such black marks on your credit can definitely impair
your ability to purchase a home, but that doesn't have to be the end of the story.
There are things you can do to repair your credit, but you need to be prepared to
spend some time and effort. There are no overnight magical fixes.
The first step is to have a solid understanding of
how credit scores work. FICO is the score most commonly used by lenders in determining
creditworthiness. This score runs from a meager 300 points to a
potential 850 points. Needless to say, the higher your credit score, the more
credit worthy you are considered to be. In the past, it was possible to
sometimes get by with lower credit scores if you had other redeeming factors,
such as a large down payment, etc. That is no longer the case. It is now more
important than ever that you have a decent credit score when making a mortgage
application. Which makes it imperative to improve your credit score if it is
less than healthy.
Overall, the best way to repair your credit score is simply
to give it some time and make sure you make your payments on time. Over a
period of time, older negative marks on your credit score will drop off and be
replaced by more recent and more responsible payment histories. With that said,
there are still some other techniques you can use to help speed along the
process.
First, make sure you know where you stand financially. If,
after analyzing the situation, you realize that you are not able to pay your
bills on time, be proactive and contact your lenders. Never simply ignore the
issue. Explain the situation and make an attempt to negotiate the repayment in
a manner that you can afford. You may be surprised at how willing your credit
card companies are to work with you. You can rest assured, you are certainly
not the first person who has called and asked to work out something given the
state of the current economy.
It is also important to review your credit report on your own. You are
entitled to receive a
free copy of your credit report from all three
credit reporting agencies from TransUnion, Experian and
Equifax each year. This will help you to know exactly what lenders will see on your
credit report and how much work you have to do to improve your credit score.
The most benefit can usually come from paying off credit
cards and loans. Anytime you can pay off revolving debt, it can tremendously
boost your credit score. Paying off an installment loan, such as a car loan,
will help, but ultimately will not provide as much benefit as paying off credit
cards, so focus on those first. Not able to completely pay off your credit cards?
If so, at least make an attempt to pay them down. You will typically be
rewarded with a credit score increase if you can pay your credit cards down to
around 25% or 30%.
Should you close old accounts? In most instances, it isn't a
good idea to do so. Many factors go into the determination of your credit score
and one of those factors is the length of your credit history. Even if you are
no longer using an old account or credit card it can be a good idea to leave it
open to demonstrate the length of your credit history.
Finally, consider obtaining a secured credit card. This can
be a good option when your credit is less than optimal because it allows you to
place a set amount of money aside as collateral for the card. The amount of
available credit on the card is typically equal to the collateral you have set
aside. Make payments on time and be sure the company reports that information
to the credit reporting bureaus to help rebuild your credit.
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