By George Raymondo
What is
the best way to raise my credit scores?
By
improving your credit score by just a few points just might seal the deal and
help you succeed in getting your home loan approved and could ultimately help
reduce your interest rate by a half percent or more. Here’s how to do it.
- Rule #1- Check your credit report regularly for errors that can lower your credit scores. Remember, every consumer receives one FREE Credit Report from the 3 major credit bureaus once a year. This enables you to monitor your credit for 30 days giving you the ability to dispute inaccurate reporting.
- Rule #2- Pay down those high balances on your credit cards, this alone can improve your credit score relatively quickly. Shifting balances from one card to another doesn’t work anymore. The credit score modeling system is setup to look at your total debt.
- Rule #3- Pay all revolving credit accounts at least 5 days before the statement cutoff date, not after the statements come in. This is a common mistake and could make the different in getting your loan approved or having your escrow fallout.
- Rule #4- If you can’t pay down your balances significantly, at least pay more than the minimum payment due on your accounts.
- Rule #5- Know when your credit card statements posts. Try to pay your balances at 10% or less and never over 30% and pay them before the due date. It’s a myth that credit scores are higher for people who carry balances on their accounts. If you pay off your balances to $0, will drop your scores.
- Rule #6- Two cards are better than one and three are better than two, but don't go crazy! If you have just one credit card, your credit history may be viewed as too limited or in the event of a mishap, where a late payment is reported on your credit account, it will have a greater negative impact.
- Rule #7- Don’t open any new accounts if you plan on starting the home loan process in the next 30-60 days. That account will not have sufficient time to rate. Be proactive not reactive. Be patient, doing the homework upfront will save you thousands in lender fees and higher interest rates.
- Rule #8- Never ever go over your credit limit. Always stay at or slightly below your limit. This is also a common mistake that consumers make. They charge their credit cards up to the limit then are either hit with a late fee or annual membership fee. This inevitably happens when you least expect it.
- Rule #9- Request credit limit increases if possible. Those consumers with secured credit cards, may be able be add to your deposits. By increasing your limit, your current debt becomes a smaller percentage of the total credit available to you. That alone will help raise your score. Do not in turn, charge up your credit card account again to the new higher limit, your score will tumble once again, and you’ll be deeper debt and will have defeated the purpose.
- Rule #10- Borrow from banks rather than finance companies when at all possible. Customers of finance companies are generally charged higher rates and fees and thought of as a slightly higher risk.
- Rule #11- Use your debit card rather than your credit card. Force yourself to be more frugal. Living debt free should be the new American Dream!
- Rule #12- Be sure that the credit bureaus remove any derogatory information that’s older than seven years and a Bankruptcy that is older than 10 years. This should happen automatically, but sometimes you just got to stay alert.
- Rule #13- Canceling unused cards is a bad move and will not raise your credit score. In fact, it will do the opposite. That’s because having fewer credit cards increases the ratio of your debt to your open credit lines.
- Rule #14- Before you go out and start disputing old collections and charge off accounts beware of this warning. This could come back to haunt you. By disputing an old collection or charge off that hasn't rated to the credit bureaus in years actual will hurt your scores if they come back and verify the debt. The scoring system will read that line item as a new or updated collection, most likely with an updated higher balance. Bad move! If a lender really requires a borrower to pay off an open collection or charge off, ask the lender to accept settlement of the debt at closing. This will reduce the chance of the credit score dropping in the 11th hour causing your loan to be denied.
- Final Rule- Never, Ever, EVER cancel your oldest credit card(s), this could be really a costly mistake. Longevity is a major factor in the credit scoring system. Accounts with longer payment histories flag your file as an experienced user of credit, not an abuser of credit, which is exactly what lenders are looking for.
