Regardless of whether it was foreclosure, a short sale, a deal instead of foreclosure, job loss, or simply irresponsibility, there are several steps you can take to get your credit rating back to the range where it is attractive to mortgage lenders and you. can finally buy this house.
Where does my credit rating come from?
Credit ratings range from 300 (the worst) to 850. Although a rating of 700 will give you lower rates and more credit opportunities than lower ratings, 760 or higher is considered the best.
If you ever ordered your credit report, you did it from one or all of the so-called “big three” credit reporting agencies: Experian, Trans-Union, and Equi-fax.
These agencies collect huge amounts of financial information from companies from which Americans received loans in the past. Based on this, they determine the payment history of each person, the duration of the person’s credit history, the various types of loans that he or she has, and the amount of credit debt.
When the large three agencies pass on their information to Fair Isaac (F.I.C.O.) or, in some cases, Vantage, it is entered into a complex formula and produces a three-digit number that largely controls your financial life. Fortunately, your credit rating is adjusted depending on how risky you look.
Pay on time
The best way to recover your credit score is to pay your bills on time, every month. Yes, it sounds simple, and it is a crucial thing, but it is also one of the fastest ways to increase your score in a more acceptable range. Do not believe us? According to a study by Experian, 100 percent of consumers are of the highest quality and 97 percent of those who have a primary loan do not have past due payments in their credit reports.
In addition, the Raleigh Regional Development Authority says that a person with a credit rating of 707 can raise it by 20 points simply by paying bills on time for one month.
Using credit cards can be the culprit when your account is at a limit.
First, credit rating agencies check the age of your loan. New credit, such as opening a new credit card or department store account, makes them suspicious. What will you do with all this new loan? Since they do not know, you get a higher credit risk and get 10 points in your account.
High balance makes you seem risky. If your cards are exhausted, you can lose up to 70 points to your credit account.
Do not close your credit card accounts, just pay on time. Consumers without credit cards or installment loans look risky (again, this is a fear of the unknown) and are usually fined with lower ratings. In addition, closed accounts are still shown in your credit reports and may affect your account.
If you have money in your budget, another quick way to raise your account is to pay a large credit card balance. Try to double your payments in a few months, or at least pay one and a half payments.
If you build it, you can buy it
Many Americans did nothing to earn a low score, except they had never used a loan. For credit scoring agencies, these people, again, are unknown persons. How they will use the loan upon receipt remains a mystery and, therefore, makes them a credit risk in the eyes of the agencies.
Unlike people who need to slow down the use of their credit card, you need to get a card, use it and pay the balance on time. Make sure you get a card at an institution that will report on your responsible use of the loan.
To make it easier for you, we have put together this convenient checklist of fixes:
– Order your credit reports at each of the three largest agencies to determine where you are
– Challenge any errors that you find in your credit report. Some dubious credit counseling companies may offer you to challenge everything in the reports, which can do more harm than good. The Federal Trade Commission offers tips on how to file disputes on your website.
– Pay all your bills on time, every month
– Pay the balances of your credit card. If you can afford to pay only one at a time, first pay for department store cards, if you have one, otherwise pay first with the card with the highest balance. Strive to get a balance within 30 percent of your credit limit.
– Use old credit cards that you have not used recently to keep their history active. Remember, an old loan is worth more than a new loan when it comes to your account.
– Get a secure credit card if you do not have a credit history. Use the card for small purchases and pay the balance before or on time.
– Consider getting a small loan if your credit report does not have an installment loan history. Make sure the lender reports to all three agencies.
– Ask lenders to update your accounts. This may be problematic, but even if one lender agrees to this, your account can improve significantly.
Ask credit card companies to increase your credit limit.