As Seen in the Naples Daily News and Bonita Daily News
With all the turmoil in our real estate market, it’s safe to say that the vast majority of people have taken a beating on their credit scores lately. Foreclosures, short sales, job loss, and piling bills have all led to problems for lots of good people who are now struggling. On top of that, banks are tightening the strings on their purses, making it ever more difficult for qualified borrowers to obtain a mortgage, let alone home buyers with troubled credit scores.
The reality is the higher one’s credit score, the more likely they will be able to get a loan in today’s market. The bonus of a higher score will be the potential to get a higher loan amount and maybe even a lower interest rate for the life of the loan which can lead to significant savings to you.
If you are serious about increasing your score, there’s no big secret to it – you just have to follow a step-by-step process and keep doing it. Don’t wait, start today!
1. Get your credit report and review it! You can do this for free by going to websites like AnnualCreditReport.com. This won’t get you your actual score, but it will allow you to see all your accounts and if there are any mistakes or errors that have been posted to your report. Oftentimes, balances are lower than what it shows, you may have paid off old debts that are still showing on the report and it’s even possible for accounts that don’t belong to you to be on your report and this could be lowering your score. Get them removed!
2. FICO scores are a measure that shows that you have a history of responsibly using and managing and repaying your debt on an ongoing basis. So use your credit regularly – and make sure you pay your bill by the due date.
3. Your credit score can be increased by how much available credit you have (i.e. a $20,000 limit on a credit card, but you only use $3,000 a month on it). It’s a fine-line to walk to have a higher credit line- don’t overuse it. That can work against you.
4. Work toward paying down some debt. Your goal is a 36% debt-to-income ratio. This will help you get a mortgage and will increase your credit score if you can stay within that ratio.
5. Ideally you want 20-30% of your available credit overall to be used, and on any given account. Closing accounts makes it look like you’re closer to being maxed out, since your ‘available’ credit is now gone, which will work against you. To increase your credit score, (especially if you have one credit card with a high balance and other credit cards with zero or low balances) you may want to consider balance transfers to spread our your debt more evenly, aiming for 20-30% of the available credit on each card.
6. The final step is to have your mortgage broker pull your credit report. They can review it and if there are problems on the report they can actually submit a request directly to the credit bureaus to update that information and your score very quickly, often in just a few days.
Keep in mind this article is about increasing your credit score (not about being debt free). So be wise in your pursuit and make sure you are comfortable and in control of all your actions. Building good credit takes time and is a process. Be patient and take it one step at a time. One day you’ll look back and be very happy with what you’ve accomplished.
