If you’re planning on applying for a home loan, refinancing, or even just looking for a great loan or line of credit, that credit score is the end-all number to determine your risk factor. Lenders, underwriters and loan officers check that number first and if it’s over 680, it’s a pretty good indication that you pay your bills on time and are a low risk. If it’s over 750, you’ve done a great job at balancing debt and payment history and if it’s over 800, well, here just take the loan, no questions asked.
But what if it’s less than desirable? What if you have a score of less than 600 or less than 500 even? Is there even hope?
Your credit score may or may not be your fault or your credit. If you have someone else that has helped improve it or sunk it, it may be fixable. We often speak with people whose spouses completely decimated their credit by promising to pay certain bills then don’t. A missed payment over and over again knocks that number farther down the line.
But what if you’re on your own again? What if it’s all in your hands? Well, there is something you can do to increase your credit score and fast.
#1. Make sure all your accounts are YOURS.
Get a copy of your credit history, not just your credit or FICO score. Look it over carefully and see if you own joint accounts with anyone. If you are not happy with the joint situation, find a way out. Ask to buy out the other partner or just get them removed from the account. This can be a great start to building your own credit back up. Correct any mistakes on the report. It may be as simple as a change of address that caused an overdue bill to be sent to collections. You may have completely forgotten about this account. If it’s small and insignificant, pay it, ask for it to be off your record, close you account and move on with your life. If things cannot be resolved after doing everything possible to rectify it, write a letter of explanation to be presented to lenders.
#2. Pay off or pay down as much as possible but don’t cancel the accounts.
Obviously, the less debt you have the better you look to lenders but don’t make the mistake of paying off a debt and cancelling the account. This shows that you don’t have available credit. For instance, let’s say you have 3 credit cards and all three are maxed. Your available debt is nothing and creditors don’t like that. If you pay off one card but keep it open, you now have available credit and the balance is looking a little bit better, but if you pay it off and cancel it, you now have 2 maxed cards and no available credit again. See where I’m going with this? Keep those available lines open to show you have credit out there, not just maxed out accounts.
#3. Anything you pay can be used against (or for) you.
Medical bills, car payments, loans, student loans, even rental payments and utility payments all factor into your credit report. Just because you’ve been paying your loans on time, doesn’t mean you’ve paid your utilities on time. If you’ve had utilities shut off or your landlord knocking on the door for rent that’s two months behind, that can affect your credit score. Keep everything on the up and up and stay current for everything, even if you can’t pay off every loan in full every month.
Other factors that determine your credit score include your job stability, housing situation, and payment history length. Although they are not the main factors, they can play into a percentage of your score.
If you’re considering refinancing or obtaining a new home loan, give us a call. Even if you’re not sure you’re financially ready, we can help devise a custom plan to increase your credit score and get you where you need to be sooner rather than later.