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Top Tips For Improving Your Credit Score In Record Time
It ought to be the ideal home buyer's market: mortgage rates are sitting at three-decade lows and residential real estate sales have slowed, meaning sellers are probably more willing to bargain.
There's just one snag: Lenders are still licking their wounded balance sheets thanks to the subprime mortgage implosion of 2008 and high foreclosures are a continuing problem. As a result, mortgage issuers have become a whole lot pickier about who they loan money to.
If you're in the market for a loan these days, your "FICO"score needs to be as high as possible. While having a perfect "850" is unrealistic, credit experts recommend aiming for at least 700 and preferably above 719. (If you have a pulse, the lowest score you can possibly have is 300.)
Until about 10 years ago the formula that determines your credit score was a black-box secret developed by the folks at Fair Isaac Corporation.
Then they decided to reveal the five components that make up your three-digit credit rating:
35%- payment history
30%- amounts owed compared to available credit
15%- length of your credit history
10%- new credit accounts you've recently opened
15%- the "mix" (types) of different credit you've used (e.g. mortgages, car loans, revolving credit, etc.)
In other words, two-thirds of your credit score comes from whether you pay your bills on time and how much of your available credit you're actually using. It stands to reason then, that if you can get a handle on these two factors, you can significantly improve your score and maybe qualify for that mortgage or car loan you want. Consumers are starting to understand how making payments affects their credit score. They're starting to prioritize their bills based on when payments come in.
Juggling various bills and timing when to mail your checks are so yesterday. In many cases, it's now possible to submit your payment from your phone or via the Internet the day your paycheck or Social Security check electronically hits your bank account. And you can receive credit that same day, as well, allowing you to pay your bill on the very last day possible.
Some creditors have started sending alerts to consumers' cell phones reminding them of upcoming bills. Members of "Generation Y" are expecting this level of service. They'll even pay via cell phone. To Gen Y, e-mail is considered a slow technology.
According to experts, if you take the following steps you are "guaranteed" to see your credit score improve over the next 12 months:
1. Think before you buy. If purchasing something on credit will take you two years to pay off, "it's not worth it."
2. Don't max out your credit cards. This goes back to the "30%" of your credit score that depends on the ratio between credit used/credit available. The smaller the percentage, the better your score.
3. Pay your bills on time. According to FICO, if your credit rating is an excellent 780 and you are 30 days late in making a payment, it can shave as much as 110 points off your score. If the same mistake were made by someone with a credit score of 680, it would only knock 60 to 80 points off.
4. Do not apply for new credit cards. Every time you do the issuer runs a credit check. Each inquiry shaves points off your score.
5. Don't forget about old credit cards and use every card at least once a year. Pay the amount you charge in full (and on time) or the issuer might close your account due to inactivity. That would hurt your credit used/credit available ratio. (See No. 2)
6. Check your credit report at least once a year to make sure the information is up-to-date and accurate. Unfortunately, a Western Union survey conducted earlier this year found that 1 in 4 consumers have never checked their credit score.
Under federal law, you are entitled to one free report every 12 months from each of the three credit-reporting agencies. Don't get sucked in by many for-profit web sites that want to charge you for monitoring and other services.
Instead, every four months, check your credit score at a different credit agency. If something negative hits your account, you'll find out about it because it will likely be picked up by all three.
7. Knowledge is power. Understand what factors make up your credit score and how your behavior impacts it. The two most important things you can do are to pay on time, and avoid maxing out your accounts and show a pattern of reducing the balances outstanding.
You may think the answer is low interest of course, but then you might be surprised. Whether you are in debt or not, credit cards are simply a financial tool and, like most tools, they can be used to your advantage or to your disadvantage.
This sounds like a fairly simple question but it is not quite so simple to answer and in trying to do so you need to view the answer from the perspective of both the borrower and the lender.
With debts and financial turmoil, you may be in a dilemma as to how to get out of your problem. No matter how much you desire to have your debts liquidated, you do not have the capacity to do so. You are burdened by the endless collection and demand letters. In such a situation you have only to see a well-experienced bankruptcy lawyer.
Credit reports are reviewed when you try to get credit, a job, mortgage, or insurance. Avoid surprises know what's in your credit report, get a free copy. If you think credit reports are only used when applying for a car loan, think again. Lots of other firms use them.
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