Friday, November 21, 2014

Raising Your Credit Score

Continuing with our home buying series, this week’s post is all about building that credit score before getting a loan. Building your credit score does not have to be hard. Often it seems to be more trouble than it actually is. There are few tips you can put in practice to move you credit score to a more attractive number for lenders. Follow the steps and you’ll find yourself in a good spot when you go to apply for a loan for your new home.

Timing is an important factor in this process. You CAN NOT change your credit score overnight. It will take several months of consistent action to start moving the dial in the right direction, so it is a good idea to start as soon as you can. Not that starting late is a kiss of death, but the earlier you start, the more change you can make before you buy.

First, get an overlook of your credit situation (monthly bills, your actual score, total credit used/available, interest rates, etc.) Your first order of business is to get rid of “nuisance” debt. Nuisance debt is defined as any small balance on a random credit card. Usually these cards have smaller limits or might be a retail store card—basically any card you don’t use on a regular basis. Eliminating these will not only ease the strain on your wallet, but help raise your score by a few points. Generally, the best way to approach this is to pick the lest used card with the highest interest rate and pay that one off, then proceed to the next, and so on.

Another method you can try actually seems like it would work against you, but, in reality, it is a very smart practice. Leave past, settled debts on your credit score. Most want these off their score report because some people think showing any sign of debt (past or present) on your score report is bad. This is not true. It’s very beneficial to leave that old, already paid debt on your debt report. Lenders want to see you are good for the money they lend you. John Ulzheimer, president of consumer education at CreditSesame, compares trying to remove old, settled debt off your report to, “making straight A’s in high school and trying to expunge the record 20 years later.” You worked hard to pay off that debt, so wear that paid debt record proudly! The debt will eventually fall off after a set amount of time, but you should leave those debts on your score as long as possible.

Paying bills on time should be of major importance to you. This is the best way to see movement with your credit score. Try to pay them around the same time each month as well. Lenders want consistency, so seeing your consistency with your past bills will make you look a little more desirable. Additionally, you get to move your debt totals down, and move one step closer to the house you’re dreaming for.

Lastly, when planning to buy a home, it is beneficial to avoid as much risk as possible. It would be wise to avoid any lavishes purchases, excess credit card usage, or paying less on bills. Try to be careful of purchases that might indicate future financial issues as well (payday advances, divorce attorneys, etc.) Seems crazy that you must have such vigilance over your own life, but lenders will use any reason to up rates or lower the amount you can borrow, so don’t give them the ammunition in the first place.

Raising your credit score isn’t as instantaneous as we would like, but with careful planning and execution, you can reach the highest scores on the spectrum. So don’t get defeated when your efforts don’t seem to bear fruit immediately. If you follow all the steps above, you will see that score rise. The journey to your new home is starting to take shape, and we’re excited to help you get there!

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