There are things consumers with less than stellar credit can do to improve their standing among lenders and to rebuild their credit score. In this article, we will look at techniques you can use to improve your stats.
Credit Score? What’s That? A credit score is the key to understanding how creditworthiness is evaluated by lending institutions, as a good credit score can unlock the vault to help obtain financing. Your payment history, loans outstanding and a general indebtedness are statistically evaluated by the credit bureaus. The big three of the industry are: Equifax, TransUnion and Experian. Based upon a compilation of that data, your profile is assigned a number between 300 and 850, with 300 being the least credit worthy and 850 being the most credit worthy.
It is this number that lending institutions use as a basis for determining whether you qualify for a mortgage or a quick escort out the lobby doors. So, now that you understand how the score works, let’s look at five tips that will help you raise a bad score and win favor with those stern-faced bankers.
Tip No. 1 — Pay More Than the Minimum
If possible, always make payments over and above the minimum interest payment that is due. Credit bureaus not only look at the amount of debt an individual has outstanding, but also the length of time it takes to pay off the debt.
Tip No. 2 — Work Out a Plan
Most people don’t realize that if they are behind on their debt payments and are going through some trying times, their lenders will often consider negotiating a revised payment plan or possibly forgiving a portion of the debt. For lenders, negotiating is cheaper than either hiring a collection agency or risking that the individual might have their debts cleared in a bankruptcy proceeding.
Tip No. 3 — Switch from Credit to Debit Cards
Credit card debt is no friend to your credit score. One of the best ways to avoid credit card debt is to pay the debt right away, through the use of a debit card.
Debit is different from credit. With a debit card, you deposit money into an account and then use the card to charge against the money. There is no credit bill to rack up, and you can only spend what you actually have. It is important to note that credit reports don’t typically factor debit card payments into the credit score equation. But by disciplining yourself and using a debit card to settle debts on the spot, (rather than racking up huge credit card balances) you will, by extension, have a better credit score.
Tip No. 4 — Cut Up Those Store Cards
The bad news is that the more open accounts you have, the lower your credit score will be. From a credit bureau’s perspective, the logic behind this is that you could theoretically tap all of these credit sources to the max at one time and rack up a huge amount of debt. In other words, credit agencies and lenders are worried about your potential for taking on high interest debt, as well as the likelihood that you probably maintain small balances on each of those cards. If they don’t have an outstanding balance the easiest solution is to simply call and cancel the cards.
The goal should be to reduce your card count to one or two credit cards. It will make reviewing monthly statements and paying your bills much easier. It will provide discipline as your overall credit limit will be lower, and finally it will keep your wallet from exploding in your pocket, which can be very messy.
Tip No. 5 — Add Comments to Your Credit Report
Often when you peruse your credit report you’ll find an error. Perhaps you’ve paid off a particular loan that isn’t reflected on the report, or there are legitimate reasons why a particular debt hasn’t been satisfied, such as a temporary disability. In these instances your first recourse should be to contact the credit agency and request they make the appropriate changes. Fibbers beware: you will probably have to provide some documentation.
Few people realize this, but credit reports typically have a space for you to provide your comments at the bottom. This section is another area of recourse that can be used. It lets you comment on why a particular debt hasn’t been paid or to point out any factual errors. To do this, the individual must contact the credit bureau directly and again may have to provide some documentation to support the claims.
A low credit score is not the end of your financial world. Discipline and responsibility can help rebuild even the lowliest of scores. Paying more than the minimum, reducing the number of cards in your wallet, negotiating a payment plan and taking advantage of the comments section on your credit report can all help boost your score and improve your odds of success the next time you need a loan.
As of today, you only need a credit score of 620 or greater to purchase a home and only 3.5% down for FHA and 5% down for conventional loans. There are still some 100% financing available with certain limitations as well as programs for first time homebuyers, teachers, policemen, etc. You can also ask for seller contributions to assist with your closing costs. And don’t forget you skip your first month’s mortgage payment. Getting into a new home has never been easier!
Author:Deborah Boyd Phone: 940-368-1306 Dated: April 12th 2016 Views: 921 About Deborah: My family has lived in North Texas for generations so I personally know the residential areas of Fri...
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