February 4, 2014 Leave a comment
Purchasing a house is closely related to having a good credit history and putting your finances in order. According to an article in Business Insider, the average household credit debt for Americans in 2009 was nearly $20,000, and recently has been reduced to approximately $15,000. Reducing credit debt takes time and often depends on spending habits.
Business Insider’s “Simple Guide To Improving Your Credit Score” offers 11 tips to help you start rebuilding your credit.
- Start with the largest debt first. A big portion of your credit score is based on your revolving debt. Paying off a big chunk of it would most likely save you from paying high interest rates.
- Make payments on time. Whatever you do, do not miss a payment. Payment history makes about 35% of your credit score, so it is crucial to meet those due dates.
- Get creative if you miss payments. Call your lender and try to convince them to remove the red flag from your account. However, don’t make this a regular practice because you might get away with it once, but next time it might hurt you.
- Pay more than the minimum balance if you can. Paying the bare minimum on your balance will not help you much, so try to put a little extra towards what you owe. This way you will pay off your debt sooner while avoiding increased interest rates.
- Consider a secure credit card. A secured credit card is a good option if you intend to rebuild your credit score. You will be asked to pay a certain amount upfront, which is used as collateral, and receive a credit card with that amount available to spend. Do your research and try to find a card without an application fee and with a low annual fee.
- Apply for a credit builder loan from a local bank or credit union. Another credit-building strategy is a credit builder loan. With this type of loan you will not get access to the money right away. The money will be put in an interest-bearing account, and the bank will hold it there while you make monthly payments on the balance. Once you pay off the balance, you get the money.
- Get an authorization on someone else’s account. You can use your spouse or a family member’s account to build some good credit on your record. Make sure you approach someone you trust because if they are not reliable, your credit score might be negatively impacted as well.
- Fix errors on your credit reports if you find any. If credit bureaus have different information on your record, this can completely hurt your score. Take advantage of the annual free credit report from Annualcreditreport.com which contains a report from each of the three credit bureaus.
- Keep old accounts open even if they’re paid off. Closed accounts will show on your record and can play a factor on your score. FICO recommends that you keep paid off accounts open because it is an evidence of a long-term good behavior on your end.
- Track your score for free. There are services that provide updated scores monthly where you can track your improvement over time.
- Do not take additional credit to pay off debt. Applying for new loans to pay off current debt is not a good idea. In fact, it will hurt your score instead of helping you get in a better shape.
The main thing to remember is that rebuilding your credit score will not happen overnight. You will need to be patient and consistently make the right decisions until you reach the score you desire. In the meantime, consider these tips from the Business Insider and learn more online.
For any questions about mortgages or a consultation with one of BluFi’s mortgage bankers, we would be happy to talk to you. Call us at 1-800-644-7779.