Whether it’s a foreclosure, short sale, deed-in-lieu of foreclosure, job loss, or just plain irresponsibility, there are a few steps you can take to get your credit score back in the range you’re in. it’s attractive to mortgage lenders and to you. you can finally buy that house.
Where does my credit score come from?
Credit scores range from 300 (the worst) to 850. Although a score of 700 will give you lower rates and more credit opportunities than lower scores, 760 and above is considered excellent.
If you’ve ever ordered your credit report, you’ve done so through one or all of the credit reporting agencies commonly known as the “big three”: Experian, Trans-Union, and Equi-fax.
These agencies collect massive amounts of financial information obtained from companies that Americans have obtained credit from in the past. From this, they determine each person’s payment history, the length of the person’s credit history, the various types of credit they have, and the amount of credit debt they owe.
When the big three agencies turn over your information to Fair Isaac Corporation (FICO) or, in some cases, Vantage, you enter a complicated formula and come up with a three-digit number that essentially rules your financial life. Fortunately, your credit score is adjusted based on how risky it seems.
pay on time
The best way to repair your credit score is to pay your bills on time, every month. Yes, it sounds simple and it’s the most responsible thing to do, but it’s also one of the fastest ways to get your score into a more acceptable range. Don’t you believe us? According to a study by Experian, 100 percent of super prime consumers and 97 percent of those with prime credit have no late payments on their credit reports.
Additionally, the Raleigh Area Development Authority says that a person with a 707 credit score can boost their credit score by 20 points, simply by paying bills on time for a month.
handle plastic
credit score
Your credit card usage may be to blame when your score is at rock bottom.
First, credit rating agencies look at how old your credit is. New credit, like opening a new credit card or department store account, makes them suspicious. What will you do with all this newfound credit? Because they don’t know, you become a higher credit risk and receive a 10-point reduction in your score.
High balances also make it seem risky. If your cards are maxed out, you can lose up to 70 points on your credit score.
Don’t close your credit card accounts, just pay them on time. Consumers without credit cards or installment loans seem risky (it’s that fear of the unknown again) and tend to be penalized with lower scores. Also, closed accounts still show up on your credit reports and can still affect your score.
If you have the money in your budget, another quick way to boost your score is to pay off high credit card balances. Try doubling your payments for a few months or at least pay a payment and a half.
If you build it, you can buy it.
Many Americans did nothing to deserve a low score, other than never using credit. To the credit rating agencies, these people are, again, unknown entities. How they will use the credit when they receive it is a mystery and therefore makes them a credit risk in the eyes of the bureaus.
Unlike people who need to cut back on their credit card use, you need to get a card, use it, and pay the balance on time. Be sure to get a card from an institution that reports responsible credit use.
To make things easier for you, we’ve compiled this handy checklist to fix your credit:
– Order your credit reports from each of the big three bureaus to determine where you stand
– Dispute any errors you find on your credit report. Some shady credit counseling companies may suggest that you discuss everything found in the reports, which can do more harm than good. The Federal Trade Commission offers advice on filing disputes on its website.
– Pay all your bills on time, every month
– Pay off your credit card balances. If you can only pay one at a time, pay off department store cards first, if you have them, otherwise pay off the one with the highest balance first. Try to get balances within 30 percent of your credit limit.
– Use old credit cards that you haven’t used lately to keep your records active. Remember, old credit is worth more than new credit when it comes to your score.
– Get a secured credit card if you have no credit history. Use the card for small purchases and pay the balance on or before the due date.
– Consider getting a small loan if your credit report lacks a history of installment loans. Make sure the lender reports to all three bureaus.
– Ask creditors to re-age your accounts. This can be challenging, but if just one creditor agrees to do it, your score can improve dramatically.
Ask credit card companies to increase your credit limit