Homebuyers: How to Increase Your Credit Score
By Jeanette Joy Fisher
Since lenders are
businesspeople, first and foremost, they need to
determine ahead of time if you're creditworthy
before approving a home loan. To do that, they
need to examine your past credit history and look
at your current financial status to minimize their
risk when offering what's generally the most
expensive purchase a person will make during their
lifetime. One of the tools they use to make that
decision is your credit score, and if it's not
where you'd like it to be, there are some things
you can do to increase your score.
Contrary to what you may have seen in magazines,
in your email box, and on late-night television,
there really are no quick fixes that will
instantly repair your credit. It will take time
and an ongoing effort from you to do that.
Truthfully, the only things you can do are to pay
down your debt load and to dispute any incorrect
negative information on your credit report.
When computing a credit score, creditors examine
five sections of your credit report. They look at
your past payment history, the amount you
currently owe, how long you've had credit, the
types of credit you've received, and any new
credit for which you've applied. Here are some
suggestions for improving your credit score if
there are one or two weak areas in your report.
First, try to keep your debt load to a minimum. A
high debt-to-income ratio will drive your credit
score down. If you have debt, pay it off rather
than shifting it from credit card to credit card.
However, if you have one card with a lot of
available credit and another card nearing the
limit, shifting part of the balance makes sense.
You don't want any credit cards with a balance
near the credit limit. Any maxed-out credit line
lowers your score dramatically.
Next, stop making late payments. Some people are
lackadaisical about paying bills, but if you have
bills that are past due, get them paid up and keep
them current from now on. If you have bills that
you know you're going to have trouble paying,
contact that creditor right away and work out a
payment plan that will help keep some of the
negative information off your credit report.
There's not much you can do about the length of
your credit history. All you can do is to make
sure that your history from this moment on will be
perfect. Time is time, and there's no way of
changing it or speeding it up.
If you decide to open a new charge account, do it
sparingly. Don't open a number of them in the hope
of raising your score. In most cases, it won't,
and may actually do more harm than good. If you've
had payment problems in the past but are now more
stable, it will help to open a few new accounts,
but if you get one, pay it off on time and don't
max it out.
If you can, try for a mixture of different types
of loans, such as installment loans (car loans,
for instance) and credit card debt. Loans with
fixed payments can help raise your score if you
live up to your part of the bargain as agreed, but
you don't want too many of those kinds of loans,
because the fixed payments will lower your
debt-to-income ratio.
There are ways to improve your chances of
obtaining a home loan, even if your previous
history has been less than stellar. However,
there's no quick way out. It will take time and
concerted effort to raise your credit score enough
to be considered a good risk by your lender.
Besides your credit score, mortgage lenders
review five other qualifications. Read the
free report, Turn Your Credit Burdens into
Wealth Building Tools, which explains the
six mortgage qualifications and then get your
copy of Credit Help! Get the Credit You Need to
Buy Real Estate to improve your credit.
Free Credit Tips for Mortgage Financing
report inside the free ebook, at
Free Credit
Help.
Copyright © 2006 Jeanette J. Fisher
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