The #1 Most Important But Overlooked Way to Raise Your Credit Score!
First, an apology... I have been away from my blog for quite a while. Some things are just more important. My first baby boy was born Nov 1. I've made him and his mom my #1 priority for the last few months. I'm back now with a fresh new perspective on life.
I appreciate the constant traffic to my site. It tells me that the information I offer you has true value. Many of my visitors arrived here by typing a question into a search engine. I've collected this information and will use it to form my future posts. I'd like to answer any and all questions you have so please feel free to email me directly at: YDL1423@yahoo.com or comment on this blog post. If you live in Pennsylvania, you can head on over to my company's site and work with me directly.
Now, on to credit. It's the big pink elephant in the room that I've danced around up to this point. I wanted to make sure before we dive into this complex and involved topic that you had a strong understanding about how the mortgage process itself works.
The #1 way to raise your score can be found by focusing on the reason credit scores exist in the first place and what they represent. A credit score is simply a numerical value to show lenders what type of credit borrower you are. It asks and answers the basic question "Will this chump pay me back if I lend them money?". You can probably answer this question yourself and create a good estimate on where your credit score will fall.
When any discussion about credit comes up most people begin by asking defensive questions. That's because everyone has tried to get consumers concerned with "fixing" their credit. Everyone tries to get you to focus on all the bad stuff on your report and how these bad accounts are killing your credit score. There are ways out there to dispute information on credit and getting your score adjusted. I don't believe that these are the best ways to raise your score, and I know these methods are certainly not overlooked. Here's what I'm talking about:
Pay your bills on time.
Don't kill me. There's more to it than that. I want to shift your attention away from the bad stuff on your report and towards the best way to raise your score: establish good credit accounts.
Believe it or not, lenders don't only look at your credit score to determine whether or not they will lend you money to buy your new home. They look at what they call "tradelines". Tradelines are credit accounts that show up on your credit report.
So, you have a hundred collections and chargeoffs spanning 20 years. If you have established credit accounts (tradelines) with reputable companies and you've kept them solid, on-time, for 1-3 years, most lenders will still consider you strongly for a mortgage.
There are exceptions to the above but mostly, if you keep 2-4 credit accounts current, you should be fine. Why? Well, you are providing rock-solid proof that you have the ability and the means to pay your bills on time. Even despite your sordid credit past, you've been able to overcome and establish a new respectable routine of paying your bills. It's the loan officer's job to make sure that the lender sees your situation in this light.
Problem : I pay all my expenses with cash. I don't have credit.
Solution: Get some!
The entire world revolves around credit in this day and age. Like computers, it's nearly impossible to get around important technological advances that affect our daily lives. Credit reporting is such a technological advance.
Don't sweat. It's easy to establish good credit if you are disciplined. Stop at your local banks and ask for applications for a SECURED credit card. You may have to visit quite a few banks to find one that has one but keep looking. You will have to put down about $200 of your cold hard cash, but if you use it right, this could be the best $200 you've ever invested.
Use this card once a month for a tiny purchase. Buy some tic-tacs. Put the card away. Pay the bill in full well before the due date. Every month you will get credit for an on-time payment on a credit card with a VERY low balance-to-credit limit ratio. It's important to keep your balances on credit cards low compared to their limit. Also, make sure that your card is sponsored by Visa or Mastercard or some other very respectable company. These cards are more likely to be reported to all three credit bureaus. Many car loans and department store cards promote the fact that they help you build your credit. This may not help you at all if they don't report to at least 2 of the 3 bureaus. Ask them before you apply, always.
Eventually you will be rewarded for paying your bill on time. The bank will give you your $200 back and allow you to keep the card open with a $200 limit. They may even increase your limit. Always take the increase. It lowers that all-important ratio I mentioned. Eventually you'll get flooded with with new sexy offers in the mail with low rates. Use them to build up the 2-4 accounts you need but use them in the way I just mentioned.
You can take a look at some of the traditional credit problems and this solution fixes or helps with most of them. Examples?
Problem: I have a bunch of medical collections that are keeping my score down.
Solution: Establish good credit accounts.
The real problem here is that you have a history of not paying your bills on time and a lack of good credit. Two things are working for you here.
1. Establishing new credit increases your score because you are a better credit risk with recent on-time payments.
2. Each month that goes by is another month further from that nasty collection. As they get older they will hurt your credit less and less. After two years, even though it sits on the report like a sore thumb, it barely effects your score.
Problem: I have a recent Bankrupcy and nobody will give me credit.
Solution: Establish good credit accounts using a secured credit card.
It's practically impossible to get denied. If you are able to open a savings account, you can get these cards. After all, the bank is never lending you any more money than you've already given them.
Mortgage lenders look at a bankrupcy as a fresh start. The government is bailing you out of an awful situation and allowing you to start all over again. If you come out of a bankrupcy and get a bunch of new collections your credit will surely tank. If you come out and establish new accounts immediately, you will be rewarded for your rehabiliation with a great credit score.
The previous paragraph also applies to people with no credit history at all. Many people are worried because they've never had credit before. Well, you're starting from scratch. Do it right and you may have a better score than someone that's been working for years to overcome bad credit. Take advantage of these situations.
Let me know if some of your credit concerns can be answered by my #1 solution.
Pay your bills on time.