Keeping Your Credit Score Healthy and Fit

Mortgage and Tax Info

If you’re in the market to buy a house, then you’re going to need a credit report that’s in great shape. You have to qualify for a mortgage, and that means that your credit report is going to have to do some heavy lifting. If you’ve had some credit problems in the past, take a look at my last article about repairing your credit. If you’re just starting out, or if your credit is clean and clear, here are some suggestions for maintaining a credit-worthy credit report and history.

1. Get a checking and a savings account and make regular deposits. It’s more than a good savings strategy, though there is that advantage. Bank accounts are viewed as signs of stability by lenders. The longer you maintain a bank account, the better it is for your credit.

2. Pay ALL of your bills as soon as you get them. Your credit history is about more than just your loans and credit cards. If you miss a payment on your electric, gas or telephone bill, it could show up on your credit report. Likewise, your cell phone bill, cable bill or any other utility or regular bill that you pay. Even one late payment can affect your credit rating.

3. Keep records. While we’re on the subject, here’s a word about keeping records. While it may seem like a lot of trouble, you should keep meticulous records of all your credit accounts, including when and how much you paid each and every time that you make a payment. If you make payments online, be sure to download and save your history. If you send out paper checks, keep the canceled checks or photocopies of them. They’ll be invaluable if you ever have to prove that you made a payment that isn’t showing up.

4. Don’t carry a balance on your credit cards. Using your credit cards is fine. Keeping them paid up to date is better. Generally, if you must carry a balance on your credit cards, you should try to keep it below 30% of the available credit limit on the credit card.

5. Don’t move too often. Living in the same place for a long period of time is a definite check in the plus column on your credit record. It’s seen as a sign of stability. If you’ve moved within the past two years, you may want to postpone the house search for a while. Not only will you be more likely to be approved for a mortgage, you could get a lower interest rate on the basis of your higher stability score.

6. Stick with your job or employer. The same holds true with your job. The longer you’ve been with the same employer, the more stable you appear to be. There are exceptions, of course – switching jobs in a clearly defined upward path could be seen as an advantage. Generally, though, you should be with the same employer for two or more years to improve your chances of being approved for a mortgage.

7. Register to vote at your current address. Yes, registered voters get a slight bump up in credit score, for two reasons. If your voter registration address and current address are the same, it serves as a second verification of the information that you’ve given. And like length of time in a home and with employer, registered voters are viewed as more stable financially than those who are not registered to vote.

8. Hang on to your oldest credit card. Okay, so you want to clear away some of that debt that you’ve built up and get rid of credit cards that you don’t use regularly. That’s a good idea. Pruning your available credit shows responsibility. Choose wisely though. One of the points counted toward your credit score is the length of time that you’ve been using credit. Unless you’ve got a compelling reason to get rid of your oldest credit cards – like high annual fees – hang on to them. They’ll do good things for your credit score. Also, don’t close many accounts at the same time, it sends a signal that you may be having difficulty managing too many accounts and will affect your score.

One of the most common credit problems that we see in our office is an insufficient credit history. Lenders look to your past handling of bills to predict whether you’ll be a good borrower and pay back your loan on time. If you have no history of paying bills, they have nothing to judge you on. If you have no credit history or a scanty credit history, here are a few steps you can take to establish credit.

1. Take out a secured credit card. Even if you have no credit – or if you’ve tanked your credit – you can get a secured credit card. Companies who offer secured credit card require that you deposit money in a bank account with them. If you don’t make your payments, they draw on your deposit to pay off your card. They also report your on time payments to credit reporting agencies, so it’s a good way to start building up your credit. Once you’ve been paying on a secured card for a while, you should qualify for other types of credit. As with any credit card – make sure you know the terms.

2. Get a parent or grandparent to cosign a loan for you. This may be the most time-honored way of all to start building credit. The loan is in your name – the cosigner basically guarantees that you’ll make your payments. Keep in mind, though, that if you make late payments or miss payments, you’ll be affecting your cosigner’s credit as well as your own. If you don’t want to feel guilty when grandpa can’t get the new car he covets, you’d best be sure you can keep up the payments on your loan.

3. Take out a small personal loan and pay it back. If you’ve had a savings or checking account with a bank for some time, you’ll probably have an easy time being approved for a small personal loan by that bank, especially if you agree to electronic payments. Your record of repayment will count toward your good credit.

The one last item that will be invaluable in helping you get a mortgage for the house that you want is a down payment. Banks and other lenders like it when you’ve sunk some money of your own into the house – it gives you equity, and makes it a whole lot less likely that you’ll default on the loan they’re going to give you to pay for the rest of it. The next installment of our Healthy Credit series will look at ways to save up for a down payment and alternative sources that you can tap.

Date: Sunday, September, 23rd 2007 @ 11:56:20 AM
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