Improving Your Credit Score
Your FICO score is constantly changing to give lenders an accurate picture of where you are right now. You can always take steps to improve your score and change the way lenders view your credit. We’ve listed a few of the fastest ways to improve your score.
Pay all your bills on time. This is the number one thing you can do to positively improve your FICO score. Even letting your accounts roll over to the 60 day allowance will usually negatively affect your score, even if you pay it off.
Keep your balances on all of your credit cards as low as possible. This means you need to pay off as much as you can afford to keep your ratio of outstanding balance to total available credit low.
Credit accounts that you have regularly paid off and have a lengthy, clean history will help your score. Research shows that consumers with longer credit history have a lower risk of default than those with shorter credit histories.
Don’t close unused cards to try and raise your score. This may backfire and actually hurt your score since it will cause your ratio of balance to available credit to increase.
Too many credit inquiries can negatively affect your credit score. Every time you apply for a credit card, an auto loan or a mortgage; an -inquiry- is made. If you do need to apply for credit for an auto or mortgage loan, then do your shopping within a short time period. FICO scores usually identify a group of inquiries as rate shopping and will only count the group as one inquiry.
It is good to have a mix of credit products, whether they are credit cards, installment loans, automobile loans or a mortgage. Having a healthy mix will generally increase your score. Although, having too much of one could be detrimental.
Once you feel all the information obtained within your credit report is accurate there are several things you can do to improve your credit report and credit scores.
If you have a low credit score, only because you haven’t had any credit, apply for credit with a local business; such as a department store or a local bank or credit union. These local merchants may have lower credit standards than larger lenders. Then, make use of that credit being sure to pay promptly. You can avoid any interest charges when using credit cards by paying before the due date on your bill.
Always pay your bills on time. This is one of the best ways to get credit and improve credit. Lenders see a history of on-time payments as indicator of good credit risk.
But that doesn’t mean your credit history must be perfect for you to qualify for a mortgage home loan. Bad credit because of late payments can be changed over time. Your best bet is to pay all bills on time.
Let’s say that you misplace a bill this month from your electricity company and you realize your payment will be late. You decide to wait until next month and just pay both months at once. Don’t!
You do not want any payments to arrive over 30 days past the due date as this will be reported to the credit bureaus. Also, the later the payment arrives the more damage can be done. Most companies will also report late payments as 60, 90 and 120 days late. So, if you happen to miss a payment make sure to send it in right away.
Another factor any mortgage lender must assess before offering you a mortgage approval is your total debt. If a large portion of your income each month is already committed to paying off other debt you’ll have a hard time getting that mortgage. The amount of your monthly debt payments compared to your income is referred to as your debt to income ratio.
As a rule of thumb, non-mortgage debt payments should not exceed 10-15% of your take home pay each month.
If you have bad credit due to too much debt, one option is consolidate your other debt as part of your mortgage. In effect, you will get enough cash to pay off the other debt as well as pay for your home.
Oftentimes, you can drastically lower your monthly payments in this way. It also leaves you with just one monthly debt payment rather than several. With one payment, it’s easier to track and be sure that payment is on time. It’s one way to increase your credit rating and credit scores, while also making your financial situation easier.
The 7 main categories of information that the FICO score evaluates, along with their approximate weightings, are:
Credit Payment History 35%
Your Credit Payment History has the heaviest weighting, representing approximately 35% of your FICO score. Most realize that events such as bankruptcy, foreclosure or tax liens will have the greatest negative impact on your score. The most common and often overlooked effect on your credit score is that from late payments. Both the frequency and the more recent the late payment occurs have a relative effect on your score.
Outstanding Credit Balances 30%
The ratio of your total balances in relation to your available credit limit weighs heavily on your FICO score. Maintaining a high balance or maxing out credit cards can be a red flag to credit evaluators. They see it as an indication that you may be overextended and is a higher risk to make payments late or not at all.
Extent of Credit History 15%
Your score reflects the length of time that you’ve had accounts open. Credit accounts that have been opened, used more frequently and been in operation longer will have more weight than those that are newly opened or used with less frequency.
Opening New Credit Accounts 10%
Opening a new credit account should not harm your credit score dramatically. However, opening several in a short period of time generates many credit inquiries can negatively impact your score. Generating many credit inquiries exudes that you are trying to secure a large amount of credit or you are being turned down by lenders and have to apply elsewhere.
Types of Credit 10%
This percentage of your FICO score is based on your mix of credit, regardless of whether you have credit cards, retail accounts, installment loans, finance company accounts or mortgage loans. It looks at the whole picture and totals how much of each type of account that you have.
Everyone has had credit challenges at one time or another in their lives. Some will have you believe that one incident will haunt your credit score forever. No matter what credit challenges you have faced, there are steps you can take to manage the burden of debt.
Debt Consolidation Loan:
You work hard everyday trying to make ends meet. You come home and just like yesterday, there’s a new bill in the mail with your name on it. You get to a point where you don’t know which is higher, the stack of bills or the interest rates associated with them.
What if you could take all of those credit card balances and group them into one payment. Better yet, what if you could also take all of those high interest credit cards and give them one low interest rate. You would have your credit cards paid off and only one low interest loan to worry about.
Refinance – Get Cash:
Trying to keep up with your high interest credit balances can feel like you are fighting an uphill battle. You put as much of your paycheck towards the balance as you can while saving only enough for day-to-day living expenses. Then you look at your credit card balance and you’ve only managed to pay off the interest. How can you ever get ahead when the credit machine is busy feeding itself? If you only had enough money to knock it out in one payment and stop those high interest finance charges from keeping you down.
There are plenty solutions that will help you do just that. With a cash-out refinance loan you can use your home’s equity to get the cash you need. You’ll eliminate your credit card balances and won’t feel like you have to sacrifice your hard earned money just to keep from falling further behind.