10 Ways To Improve Your Credit

Everyone knows their credit is important when applying for a mortgage, right? If your score isn’t high enough, you could get stuck with a crappy rate or worse. Denied.

Over my 17 plus years in the mortgage industry, I’ve given endless advice to borrowers looking to improve their credit. (In some cases, we can do a rescore after you pay some things down and your score goes in a few days!!) BUT, I haven’t ever put my thoughts about credit into a simple, easy to ready guide like this. Until now.

If you’re considering applying for a mortgage, contact me today!

*If you want to improve your credit, it’s important to call me so we can talk through your specific situation. (Yes, this is my disclaimer.)*

1. Pay your bills on time. DUH! It really should come as no surprise that paying your bills late impacts your credit. Late payments are the number one reason why credit scores go down. Just one late payment could take your perfect, 800+ credit score down as far as the low 700s (which still isn’t bad, by the way). Even just paying the minimum payment on the card or loan is better than no payment at all.

By far the worst payment to be late on is your Mortgage Loan. Do not pay your mortgage late! Most mortgage loans have a 15 day grace period before late fees kick in. Then, they have another 15 days where if you make the payment with the late fee, it won’t report as “late” to the credit repositories. Be sure to check your statement to see the specifics of your mortgage loan.

Did you know, not all bills report to the credit repositories? Just the other day, I was talking to a client who swears she had a medical bill that went to collections. It wasn’t on her credit report, so there really wasn’t much to discuss. She called the medical company to get them paid and later told me that the medical company doesn’t report to the credit repositories! Who knew?

2. Keep your credit card balances low. Having credit cards impacts your score. BUT, when the balances on the cards are close to the limit, the credit reporting agencies think of this as “risky” and your score goes down. So, to improve your score, be sure to keep the balances on your credit cards below 35% of the limit.

The rule of thumb with credit reporting agencies is they want to see fiscal responsibility. So, keeping your credit balances low shows that you are responsible.

3. Have a “Strong History” of credit. This one is a “time” thing. Younger people starting out have what’s called a “thin credit file” because they just don’t have a long standing history of paying their bills. A “strong history” means having a substantial history of paying bills on time. It also means having cards and loans open for a long time. Don’t close out cards that haven’t been used in a while. This can actually hurt your overall length of credit.

4. Reduce the number of inquiries. Look. If you’re in the market for a new home, call me. I only need to pull your credit once and I can shop dozens of well qualified institutions I work with to get you the best deal. If you’re shopping for a car, credit repositories tend to understand you’re going to apply a few places. BUT. Don’t apply to Place A one month. Wait two months. Then apply to Place B. Wait another month. Apply at Place C. This looks awful on credit files.

When you’re going to get your mortgage (If you could see me typing this…. I’m begging you!), and you apply with me, DO NOT have other people pull your credit. It creates a mountain of paperwork and an even bigger series of uncomfortable questions from our underwriter.

Related: 5 Keys to the Lowest Rate

5. Separate your accounts (after a divorce). Divorce happens. It sucks. Even if you settled it civilly or amicably, who knows how your ex will handle their bills. Just because you got divorced, it doesn’t mean you are free from paying your bills (or your ex’s if it was a joint account). Don’t be tied to their credit file.

6. Remove inaccuracies. I can’t tell you how many times I’m reviewing someone’s credit and they don’t know about a collection item or a late payment. I get it. They happen. BUT, you’re responsible for your credit. The government setup a FREE Website, www.annualcreditreport.com, where you can, for free, pull your entire credit file to see what’s on there. You won’t get a score (unless you pay), but you’ll be able to see if there are items in collections that you don’t know about or late payments that need to be disputed.

I can help you dispute your inaccuracies, but it will slow down the mortgage process a little. You should take a few minutes, once a year, to make sure there are no inaccuracies on your credit report.

7. Control your Inquiries. I get it. You want to shop for the latest and great technology. Or, the best deal on a car. Or, furniture for the new house. Makes tons of sense. HOWEVER, you need to control your inquiries on your credit. Don’t have 4 different furniture stores pull your credit before you’ve even picked out the furniture. Be more cautious about how many times your credit is pulled.

8. Bankruptcy is bad. Wow. Did I need to put this on here? Well, believe it or not, bankruptcy hurts your credit and your chances of getting a mortgage. THE GOOD NEWS: It doesn’t need to be that way forever.

People make mistakes. Get too much debt. Get behind on their bills. It happens. Once you file for bankruptcy, credit reporting agencies want to see that you’ve changed. Missing just one payment after a bankruptcy could impact your approval.

9. Don’t consolidate balances onto a single credit card. This one has got to be confusing for some. Wouldn’t it be better to have just one really big credit card instead of a bunch of little ones? Not necessarily. Remember point 2. Credit reporting agencies want to see the total credit balance below 35% of the limit. So, if you consolidate all your balances to one, it may make that balance much higher than 35% of the limit.

(The best rule of thumb here is to avoid credit card debt in general. For some, this is easier said than done.)

10. Talk to your creditors and collectors. If you have ever had a bill “go to collections”, then you know the phone seems to never stop ringing. It’s annoying. It’s embarrassing. It’s a lot of things. However, talking to them could avoid a judgement. Talking to them could reduce your total balance without the item being reported on your credit report.

You can actually negotiate with your creditors. One couple I worked with told me they called the companies they had medical bills with and offered a settlement (about 60-70% of the total amount due) in exchange for a letter from them saying they wouldn’t send the medical bill to collections. It worked for them!

Now that I’ve given you the 10 ways to improve your credit, it’s time to begin the application process. Give me a call today so we can get started!

Don McCartney – (847) 727-9312 - NMLS 226157