Improving your Credit Scores - Some Dos and Don’ts

Credits scores are a brand you wear these days, but for some people it’s more a Scarlett letter than anything else. There are some common misconceptions about what affects your credit score, positively or negatively. Knowing how to navigate, as well as what to navigate, may just save you some time and headache.

One of the first things that you should know–if you don’t already have it tattoed into your brain–is that your credit score determines, largely, what you’ll be paying for credit. For most of us, this is one of the most important aspects and concerns when buying a house, because it can mean the difference between getting a loan and not, or paying a reasonable monthly payment versus having to sell an organ each month just to do soLender.

Mortgage lenders, at least the ones that are good, know that there will be certain dings against your credit that are easily fixed, or that affect your credit negatively when maybe they shouldn’t be.

Sometime, however, you do come across some less-than-stellar mortgage brokers that either don’t know their stuff, or for whatever reason lead you down a wrong path.

A few general things to consider when trying to improve your credit score:

1. Credit scores take into account the difference between the credit you have available to you and the amount of credit you are currently using. While it’s a common belief that closing unused or open accounts will improve your credit score, that may not necessarily be the case. Think about it–if you have 5 credit cards and/or accounts that are showing you having access to $100,000, wouldn’t it make more sense that a lender would be more willing to loan you money if you could tap into those piggy banks? (No, we’re not saying you should use them as piggy banks, because you shouldn’t).

2. The longer your credit account is open, the older your credit history looks to lenders. That is a good thing. It shows you are responsible, at least in terms of keeping that account open for so long without the company taking the card away from you because of lack of payment.

3. Pay down your outstanding balances. Having a lot of credit is great. Maxing out that credit isn’t so great, at least not from a lender’s perspective. Borrowers who continually pay down their debt show responsibility by the borrower.

4. Checking your credit score at least once a year is a good thing. It helps you stay on top of your score, so that if there are any negative factors affecting your credit you’ll catch it sooner than later. Fixing problems on your credit sooner ensures that problems don’t escalate to unmanageable levels.

5. Credit card companies are always going to inquire about your credit–so don’t worry about how it will affect your credit score. If you open up a new card, be smart about it–meaning don’t open all of the account offers you’re sent. It’s a sure fire way to get overwhelmed in debt and becomes more difficult to manage the more bills you’re getting each month.

6. Fico, the consumer division of Fair Issac, which is the company that invented the credit risk score that lenders use when assessing the risk a borrower poses to the lender, counts multiple credit inquiries within a 45-day period as 1 inquiry. So when buying a house and looking for a mortgage, try to get that all taken care of within that time period.

To learn more about how to raise your credit score, check out Consumerism Commentary’s blog on the topic:  http://www.freemoneyfinance.com/