Building good credit is much more like running a marathon than a short all-out sprint. Many factors determine your credit score, but more importantly, you must demonstrate good credit practices over time.
If your credit score is less than stellar, you can take steps to build better credit:
1. Know your current credit score. Get a copy of your credit report, especially if you are thinking about a big purchase like a home or car. Mistakes can happen, so clear them up. Check for incorrect late payments, credit limits or collection items that aren’t yours. Most credit reports show codes or factors that kept your score from being higher, allowing you to focus on areas to improve. Note: You can get your credit report from each of the three major reporting agencies, Equifax, Experian and TransUnion, for free once a year at annualcreditreport.com.
2. Check for mistakes. More than 70 percent of Americans have some sort of error on their credit reports. The three major credit reporting agencies/bureaus do not verify or validate information from creditors, so mistakes and inaccuracies occur. In many cases, the incorrect information can impact your credit score or how long certain items remain on your credit report. You have the right to request, through the bureaus, that creditors validate and substantiate that information in the report is accurate within 30 days.
3. Take steps to clear up errors. If your credit report contains discrepancies, such as accounts that don’t belong to you or that are carrying a much higher balance than should be there, contact all three credit bureaus right away. Those items could indicate identity theft. If your account shows negative information that is incorrect or older than seven years for debt and 10 years for Chapter 7 bankruptcies, contact both the original lender and the credit bureau. Send certified letters with supporting documentation of payment or asking for old information to be removed. Follow up, and keep written notes on the people you speak with and details of the conversation. Persistence will pay off and go a long way toward improving your credit score.
4. Pay your bills on time. Late payments cause the most damage to your credit score. Even if you’re juggling bills, send a small payment in on time. Too busy or bad about paying on time? Set up regular electronic bill payments through your bank.
5. Ban credit card balances. Reducing the balances on your revolving credit cards is a very effective way to boost your credit score. Credit rating agencies evaluate how much revolving credit you have versus how much you actually use. They like to see charges reflecting 30 percent or lower of your available credit. Keep your balances low, or better yet, pay them off each month. If that has been an issue, work toward paying the lowest balance first and steadily chipping away until those balances are gone.
6. Consolidate your credit cards.
If you have a lot of smaller balances on different cards, your credit score can take a big hit. Credit agencies assess how many of your cards have balances. Consolidate with one or two go-to cards that you use for all your purchases.
If you have a lot of smaller balances on different cards, your credit score can take a big hit. Credit agencies assess how many of your cards have balances. Consolidate with one or two go-to cards that you use for all your purchases.
7. Show good debt.
Some people think you should remove all debt from your credit report. However, experts say that showing good debt – debt that you have handled well and paid off as agreed – is good for your credit. Your credit score improves the longer you can show history of good debt, whether paying off a student loan or home mortgage.
Some people think you should remove all debt from your credit report. However, experts say that showing good debt – debt that you have handled well and paid off as agreed – is good for your credit. Your credit score improves the longer you can show history of good debt, whether paying off a student loan or home mortgage.
8. Don’t apply for multiple credit cards or loans.
Every time you apply for credit, it can cause a negative bump in your score. Scoring agencies reason that if someone is making multiple applications for credit, it usually means he or she wants to use more credit. However, new scoring formulas allow for the fact that if you’re shopping for credit for a home, car or student loan, you will look at multiple opportunities that might provide the most favorable credit terms. Just make sure that the shopping for good rates is within a specific timeframe, say 30 days. Multiple inquiries over time do not bode well for your credit score.
Every time you apply for credit, it can cause a negative bump in your score. Scoring agencies reason that if someone is making multiple applications for credit, it usually means he or she wants to use more credit. However, new scoring formulas allow for the fact that if you’re shopping for credit for a home, car or student loan, you will look at multiple opportunities that might provide the most favorable credit terms. Just make sure that the shopping for good rates is within a specific timeframe, say 30 days. Multiple inquiries over time do not bode well for your credit score.
9. Big changes throw up red flags.
If you suddenly start missing payments, pay less than normal or charge more than normal, it can dent your credit score. Agencies are looking for what kind of risk you are. The more responsibility you show, the better your score.
If you suddenly start missing payments, pay less than normal or charge more than normal, it can dent your credit score. Agencies are looking for what kind of risk you are. The more responsibility you show, the better your score.
If you would like more information on how to get started on your road to homeownership, Contact a Benchmark Homes New Home Specialist today at Baldwin County 251-943-7097, or Mobile County 251-473-8600.
