How can you improve your credit score?
It's almost impossible to change your score in the time between when most people decide to buy a home or refinance their mortgage and when they apply. The notable exception is having an error corrected, but be aware that even this takes time. There are strategies you can live with to make sure when you apply for a loan your score is as high as possible.
Make sure that the information each of the three credit reporting bureaus has on you is consistent and up to date. Order a copy of your credit report at least once a year, and dispute any inaccuracies. There are very specific guidelines for disputing an error, so if you have been trying without any success to get a correction made, please contact me for assistance and those guidelines.
I highly recommend that you sign up for a Credit monitoring service. I suggest that you use the services offered by your bank, or my favorite is at Costco.com, if you are a Costco member. These services monitor your credit 24/7, and alert you immediately when activity occurs on your report. In addition, many of these services offer the following:
1. will assist with a dispute in case of an error, or ID theft.
2. will show you "what if" scenarios. For example, if you pay down a debt, how much is that likely to increase your score.
There are some highly televised "free" credit report agencies online. Please beware which of these services you utilize. I recommend www.annualcreditreport.com. With this company, you will get a pretty accurate report - and most importantly, pretty accurate scores. I've seen reports from other companies that report scores so innacurate, they are virtually worthless in helping you assess how you stand.
Note: Theoretically, if a series of credit reports is requested on your behalf during a limited amount of time, your score goes down until time passes without any inquiries. Changes in the law though have made "consumer-originating" credit report requests not count so much. Also, a series of requests in relation to getting a mortgage or car loan is not treated the same as a number of credit card requests in a limited time. This is because the credit bureaus, and lenders, realize that people request their own credit reports to keep up with what's on them, and smart consumers shop around for the best mortgage and car loans.
Unsolicited credit card solicitations in the mail don't count against your credit report, so don't worry.
The two main components of your credit score are your payment history and the amounts you owe, relative to your credit limits. Bankruptcy filings and foreclosures, which can stay on your credit report for as long as 10 years, can significantly lower your score. As long as these negative items stay on your report, your score will be lower. It's never a good idea to take on more credit than you can handle.
Late payments work against you. It's extremely important to pay bills on time, even if it's only the minimum monthly payment. If you find yourself in trouble, for any reason, it is most important to contact your creditor immediately to see if you can work out a payment plan, or if the creditor will extend the time prior to reporting a late payment. Just one late payment can lower your score VERY significantly.
Don't "max out" your credit lines. If you owe more than 50% of your credit limit, this can impact your score a LOT. AND, do NOT close out credit lines that you are no longer using (unless there is an annual fee associated with the line.) The more credit that is available to you, relative to how much you owe, the higher your score is likely to be. It's said that by carefully managing your credit, it's possible to add as much as 50 points per year to your score.
If you do not have at least 4 lines of credit available to you, this can lower your score. In this case, opening a line of credit (such as a VISA or Master Card) with a major bank, can actually improve your credit, as long as you use the credit, and pay the bill ON TIME every month. If at all possible, it is always good for your score to use your credit cards often, and pay off the balance each time it is used.
One way to get a quick fix on your score is to ask your creditor for an increase in your line of credit to lower the amount you owe, relative to the amount available to you. Keep in mind though, that if you do get an increase in a line of credit, and then charge up to the increased limit, this will very likely lower your score.
Credit scoring is very complicated. It is VERY important to pull your own credit at least once a year to make sure that what is being reported is correct. As a loan originator who pulls credit all the time, you wouldn't believe the mistakes we see. This is definitely a case of "What you don't know, CAN hurt you."
As always, if you have questions, please call BEFORE you do something that can hurt you.
