Credit

Credit is a topic that is near and dear to me. I have taken a ride on the credit score roller coaster and can tell you first hand about the highs of being offered the best interest rate and terms and the lows of having them laugh at me and show me the door. It’s with those memories in mind that I answer the potential home buyer’s question. ” What should I do to be able to buy a home in 3 months, 6 months or even a year”? My answer is almost always the same… PULL YOUR CREDIT NOW!!!! Don’t wait until you have found the perfect house and then decide to pull your credit. The decision to pull and understand your credit report can help you reap rewards for years to come, and keep thousands of dollars in your pocket instead of the banks.

If your credit score needs to be improved, it is vital to understand how the score is compiled and the weight of each category.

Payment History – 35%

Whether or not you have been a good credit risk in the past is considered the best indicator of
how you will react to debt in the future. For this reason, late payment, loan defaults, unpaid
taxes, bankruptcies, and other unmet debt responsibilities will count against you the most. You
can’t do much about your financial past now, but starting to pay your bills on time – starting
today – can help boost your credit score in the future.

Amounts Owed – 30%

If you have lots of current debt, it may indicate that you are stretching yourself financially thin and may have trouble paying back debts in the future. If you owe a lot of money right now – and especially if you have borrowed a great deal recently – this fact will bring down your credit score. You can boost your credit score by paying down your debts as far as you can. You want to owe less than 50% of your outstanding credit line, while 30% to 0% is best.

Length of Credit – 15%

If you have not had credit accounts for very long, you may not have enough of a history to let lenders know whether you make a good credit risk.
Not having had credit for a long time can also affect your credit score. You can counter this by keeping your accounts open rather than closing them as you pay them off.

Type of Credit – 10%

Lenders like to see a mix of financial responsibilities that you handle well. Having bills that you pay as well as one or two types of loans can actually improve your credit score. Having at least one credit card that you manage well can also help your credit score.

New Credit – 10%

Applying for numerous accounts in a short period of time can negatively effect your credit score. Space out you request for credit to help prevent a drop in your score.

Now that you know what makes up your credit score and the importance of each category, you can put a plan in place to repair your credit. Focus on payment history and the length first and then gradually work your way down the list. Take control of your credit score and with your financial future!