There are many questions and uncertainties about the lending situation in America right now. Understanding your credit score is more important now than ever. This months Item of Value I mailed out addressed this but I wanted to take it a little deeper.
How to Understand & Improve your Credit Score
Know the Rules: Too many credit applications can lower your score. Multiple inquires signal that you are having trouble successfully securing a loan and may be a credit risk or undesirable borrower. However, multiple inquires to the same type of lender, such as a mortgage company, are counted as a single inquiry if submitted over a short period of time.
Reduce Your Debt: Creditors look for an optimal total debt load of around 36% of your household income. You don’t want your mortgage, car loan and revolving credit card payments to total more than 36% of your monthly income.
Pay on Time: The easiest way to raise your credit score is to make all your payments on time every month. Over the span of several months, you will likely see your credit score improve. Any payments you can make automatic will prevent you from ever missing.
Timing is Everything: Wait 12 months following a credit problem before applying for a mortgage or auto loan. You will be penalized less for problems that are more than a year old.
Get Your Finances in Order: Avoid credit card purchases prior to applying for a major loan and stay away from independent finance companies with high interest rates, which reflect poor credit management. Transferring debt from one card to another is another way to lower your credit score. Paying off your credit card each month is ideal.
Plan Ahead: Don’t open new credit card accounts right before applying for a home or auto loan. Having too much available credit can lower your score. Also the longer you have been at your current job the better this reflects on our qualifications. If you plan on applying for a loan and will be switching jobs soon, apply before you start your new job.
The Five Parts of Your Credit Score
Your payment history (approx. 35%)
How much you owe (approx. 30%)
Length of credit history (approx. 15%)
New credit (approx. 10%)
Other factors (approx. 10%)
For more information, as always, just give me a call!
Renée
