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3 MUST DOS FOR YOUR CREDIT SCORE

Posted By: In: Credit Scores
Date: Thu, Mar 1st 2018 12:26 pm

Raise your Credit Score

As a licensed Realtor working with Clients from all ages, backgrounds and income levels, I often get a lot of questions from them related to their credit reports.

I find that there is a lot of confusion as it relates to credit scores and reporting.  It doesn’t matter if you have been a homeowner for years and you are looking to upgrade or maybe buy some investment property or if you are interested in buying your first home unless you are planning on buying property with cash, your credit report and overall credit score matters.  Why is your credit score important?  Your overall credit score and credit report impact almost every aspect of your life.  Your report is a roadmap that tells a very detailed and interesting story about your financial responsibility and overall financial health. 

Like it or not, your credit score affects your ability to rent a car or an apartment, it impacts how much you pay for car insurance, what down payment you are required to pay, what loan amount you would qualify for, what interest rate you are charged, what loan options you may have for everything from an unsecured credit card or an open line of credit or a secure long-term loan including car loans and mortgage loans.  It is very important that you build credit and maintain the highest credit score possible.  So how do you build your credit and increase your credit score?  Here are some little-known facts that should help answer that question. 

1. BUILDING CREDIT

Even if you are a Dave Ramsey fan and plan on living debt free, it is still very important that you establish and maintain some kind of credit.  As a young adult trying to establish credit or an older adult trying to repair credit here are some helpful ways you can build or re-build credit.

You want to begin establishing credit by obtaining a Share Secure Credit Card.  This credit card requires that you deposit the credit card limit (usually $500 - $1000 dollars) into a savings account and the funds are placed on hold in that account and are used to secure the credit line on the card.  You should then use this card for small purchases throughout the month and then make the minimum monthly payment on or before the monthly due date each month.  This will establish a credit line and start building a credit history.  If you have bad credit this same option should be used to start to repair your credit. 

These days most parents buy their teenagers a car.  As a young consumer, you should ask your parents to allow you to apply for the loan and have them co-sign the loan (even if they plan on making the loan payments) this will help you begin to establish some credit history.  If you are trying to repair credit obtaining a loan with a co-signer will also work to help you repair your credit report and increase your credit score.
College graduates should be sure to pay on their student loans timely each month.  This too will establish a positive credit history. 

What does “Good Credit” look like and what impacts your credit score?

It doesn’t matter if you have a long history of credit or you are just beginning to build and establish credit the following information is important to know and understand.  There are three major credit repositories that hold and measure all of your credit information.  They are Equifax, Experian and TransUnion.  Every financial institution that provides credit to consumers issues monthly updates on your loan performance to at least one or all of these credit repositories.  The repositories gather the information and it is reported on your personal credit file for a period of 7 – 10 years depending on the information being reported.  This information is then graded and scored on a matrix that is slightly different for each repository so your credit score will be slightly different as reported by each repository.  

 Scores are weighed based on the following percentages:

Your consumer loan payment and credit history – 35%
Outstanding loan amounts owed – 30%
Length of credit – 15%
New credit – 10%
Types of credit (secure / unsecure) 10%

In general, you are encouraged to actively use at least 20 – 30% of your obtained credit.  For example, using easy math, if you have outstanding loans or credit balances totaling $10,000.00 you should be utilizing $2,000 - $3,000.00 of that available credit each month to obtain an optimal credit score.  Credit scores range from 300 – 850 but generally, any credit score that is 760 or greater is considered “optimal” and will afford the consumer the same borrowing power. 

How does your score compare to the rest of the population?

Score                     Category              Percentage of the Population

800 – 850            Exceptional             13%
760 – 799             Excellent                27%
700 – 759             Good                      18%
650 – 699             Fair                         15%
500 – 549             Bad                          5%
300 – 499             Very Bad                  2% 

It is important to understand that the credit report and credit score that you request and obtain from a credit repository are “consumer” credit reports and are different from the “commercial” credit report a lender will get when they pull your credit.  A lender pulls a commercial report that is a tri-report and includes a combination of all three repositories.  The report you request is a “consumer” report and is provided to you by the repository your requesting it from.  Because of this, the credit score on the consumer report is generally slightly higher than the score obtained on a commercial credit report that includes information from all three repositories. 

2. MONITORING CREDIT REPORT

By law, as a consumer, you are allowed to obtain a FREE copy of each of your credit reports from all three repositories once a year.  A responsible consumer will rotate and order a copy from one of the three repositories every four months during the year to check their consumer credit score and to assure that all of the information on the credit report is accurate. 

3. REPAIRING YOUR CREDIT REPORT

The consumer should then dispute any credit lines or payment information that is not accurate.  You should dispute it with both the lender who issued the credit line that is reporting in error and directly with the repository reporting the information on your credit report.  In order to dispute information that is not being reported accurately, you must submit the dispute in writing and provide proof of your dispute.  By Federal Law under the Fair Credit Reporting Act or FCRA the lender has 30 days to research and respond to your credit dispute or the repository is required to remove the information from your report.   Depending on your credit score and past credit issues outside of foreclosures, default judgements or bankruptcies which remain on the public record section of your credit report for years and will only improve over time, with discipline and hard work, most consumers can significantly repair and improve their credit score within 3 – 18 months regardless of what their credit issues are. 

BOTTOM LINE

We have over 25 years of real estate and finance experience and are skilled at working with new first-time buyers looking to purchase their first home as well as seasoned buyers who may be experiencing some credit issues and need some help cleaning up their credit.   Contact us now!