Lenders tightened credit requirements, getting a good interest rate - or a loan at all-requires an understanding of how the scoring system works. Mortgage rates have tumbled, yet many would-be buyers and refinancers are missing the chance to lock in loans at record lows because their score is too low to qualify for the best rates or too low to qualify for any loan at all. Lower scores mean higher rates; scores below 580, there is no qualifying which means missing out on what may be once-in-a-generation interest rates. Credit scores are three numbers lenders use to gauge your creditworthiness. A few years ago a 720 FICO CREDIT SCORE was enough to get the best rates and terms. Even people with lower scores could get a decent rate, and at the peak of the lending boom it seemed almost no score was so low that it merited a rejection. Now, lenders demand at least a 740 score for the best mortgage rates. Less-than-stellar credit can hurt in other ways. After all, credit information is used: By insurance companies to evaluate applicants and set premiums, by landlords to decide who gets apartments & by employers concerned about higher risk of theft from those with troubled finances. Clearly, cultivating good credit scores is an essential 21st-century skill. The good news is that it's possible to boost your numbers by keeping a handle on your finances and to know how credit scores work. Plenty of folks handle their credit well enough to earn good scores and by recognizing how to improve their score:
- First of all, if finances are in free fall, if you're unable to pay your bills, you will be hard pressed to raise your credit. Real credit score repair will have to wait until the financial crisis has been solved and there is enough money to cover expenses, plus some extra to begin paying down debts.
- Credit scores are based entirely on the information in your credit reports on file at the big three credit bureaus: Equifax, Experian and TransUnion. If the information is wrong, your credit scores could suffer. You can get your reports once a year for free from AnnualCreditReport.com; or directly from the bureaus or from MyFico.com
- Dispute any errors that impact your score and all other negative information that's older than seven years (the seven-years typically starts 180 days after the account first went delinquent).
- Use at least two forms of credit to raise your score. Credit scores try to predict how well you're likely to use credit in the future by how well you've used it in the past. Living a cash-only lifestyle won't boost your scores -- in fact, without continuing use of some type of credit, eventually your credit report won't even generate credit scores.
- You don't have to pay credit card interest to achieve great scores. "Using credit" is not the same as "carrying a balance on your credit cards." Carrying a balance is expensive, bad for your finances and completely unnecessary. Many have achieved 800-plus scores by paying off balances religiously, so build and keep great credit scores without ever paying a dime of credit card interest.
· Retail cards and gas cards can help you build your credit history initially, but to get your scores into 700-plus
territory get one major credit card: Visa, MasterCard, Discover or American Express. If you can't qualify for a regular card, consider a secured version, for which you make a deposit with an issuing bank. Just make sure the card reports to all three bureaus and that it converts to a regular credit card after 12 to 18 months of on-time payments.
- Another valuable piece of information is that by only using 25 to 30% of your available credit will work to improve your score. If you use over 30% of your credit line, this will reduce your score. Also, rather than applying for new credit cards which will reduce your score, keep the oldest credit card accounts open as this will raise your score over time and you're likely to see improvement in your scores within 30 days if you pay down significant chunks of your credit card debt.
- Credit repair takes time, and how much time depends on the many details of your credit reports. If you have serious black marks, such as bankruptcies or foreclosures, you can see significant improvement in your scores as time passes but you may have to wait until those negatives drop off your credit reports before you can join the 700-Plus Club.
Now that you understand the basics, you can use the following techniques to get your scores over 740. If you or anyone you know has Real Estate or Mortgage needs contact Deborah Prather at 305-298-8104.
