Funding A Home: Improving Your Credit Score

Nowadays there are many homes for sale with low prices and low interest rates. Housing is more affordable now than it has been in many years. Considering the current market, why isn’t everyone taking up homes? The truth is, many first-time home buyers are jumping into the market and getting in on this inexpensive housing opportunity. Real estate investors are also very active as they see this unique opportunity to build their wealth. The unlucky reality for everyone right now is that even though homes are more affordable now within many years, lenders are very picky about who gets a loan and who not. And your credit score is one of the primary indicators of whether or not you will get approved for a loan and what your rate of interest will be.

Just a few years ago a debtor with a credit score as low as 500 can buy a home. Today that score needs to be a minimum of 620 to 640. And to qualify for the best interest rates a person better have a credit score in the 700’s. No matter what your credit score is, you should know this. If it is not close to 750 you need to resolve to get there and here a few easy tips to help improve your credit score.

Why don’t take a look at what information on our credit history determines your score, then we will give suggestions on how to improve in each of those areas

35% or your credit score is attributed to your transaction history which not only includes real payments to your creditors, but it contains things such as collections, judgments and tax liens. With this in mind you always make sure you make your car, credit card plus loan payments on time. Many lenders also require verification of rental payment history, so you will want to make sure you pay your rent on time as well. By the way, a payment is considered promptly if it is paid within 30 days of the due date. If you have collections, judgments or even tax liens on your credit, you will need to provide proof that these were compensated. If there are unpaid collections you can in many cases negotiate a settlement for less than what exactly is owed. From a credit scoring perspective this is almost as good as paying in full as long as it is reported as pleased in full on the credit report.

In addition , you may make a payment arrangement for tax liens and after 12 months get all those rated for your credit report which will help. Decision are required to be paid in full at the close of a loan, and you will need to get it paid and the credit report updated in order to improve your credit score. In many cases using a history of late payments we have to state, time heals all wounds. Basically, it may just take a year or so of creating your payments on time to get the credit score you will need. If you have items on your credit report that are incorrect, then you can dispute those items to get them corrected with the credit agency.

30% of your credit score is attributed to how much you owe on your credit card as a percentage of total credit limit. Let me give you an example: If you have one charge card with a $1, 000 limit and also you owe $750 on this card, your own percentage of credit usage is definitely 75% and your available credit is usually 25%. The lower the usage percentage the higher your credit score will be (all other factors being equal). There are 3 methods to improve this number. You can accomplish this by paying your credit card down as soon as possible. You can request an increase in the credit card limit. And you can also open up new cards. For the last two, you will have to exercise some caution however.

Whenever you request an increase in your credit card, you need to ask your credit card company when they can do this based on the merits of your payment history with them.
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If not they are going to create a credit inquiry which can reduce your score just a little bit. In my opinion it might probably still be worth the credit inquiry deduction from your credit towards your credit limit increased. I believe that generally you would have a net gain within credit score, but there have been times when I have seen it drop at least in the short term. By the way, do not increase the balance on the credit card when your limit goes up or perhaps you will have just undone the improvement, but now you owe more money and still have a low credit score. Similarly, when you open up a new credit card, you end up having a couple of strikes against you which is the credit score inquiry and the new credit account. More about both of these in a moment.

15% of your credit score is attributed to your length of credit history. So Let’s have got another example: Let’s say you have two credit cards. You have had one of the credit cards for 5 years and the other card for 3 years. So on typical your credit cards are 4 years of age, and so your credit score will reflect this particular 4 year average length. Now if you open a new card, you lower your average down to about 2 . seven years from 4 years. So initially at least this can have the effect of lowering your average length of credit and reduce your credit score accordingly. That is one of the reasons that opening new credit is not a fast fix for bumping your credit score upward. However lets take a look at it annually from now. In one year from opening the new credit card your typical length would be at 3. 6 so if this is part of a longer phrase strategy then it would probably be a good strategy to follow.

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