Credit scores determine many things, including mortgage rates, insurance rates, credit card rates and your ability to buy a car or rent an apartment.
Many young people are coming out of college with either no score or a score too low to qualify for starting out in their professional lives. Many who are starting over never realized that having all debt and credit in their spouse’s name would make it difficult for them to begin again.
There are 3 rules to follow to either get or improve your credit score:
- You need to have three open pieces of credit (loans, revolving credit cards, installment loans and even student loans work). Mortgage loans require these 3 items have been open a minimum of 24 months each.
- 1/3 of the balance should be left to cycle over into the next payment cycle (paying off a balance before the cycle ends doesn’t show a charge and repayment history). It will cost you interest, but the information is not updated to the credit reporting agencies unless there is a balance or activity on the card.
- Keep balances at no higher than 1/3 of the credit limit. If your card is at or near the maximum, it shows that you cannot manage your credit. If your card is always at a zero balance, it shows you either don’t use credit and therefore cannot show you know how to manage it, or they see you have availability of entire credit line and you could charge the entire limit the next day.
If you have a child who is 18 or older, open a joint card with them. Making them an authorized user on one of your cards will not work, they need to be a joint owner. Work with your child to explain how to use and manage credit. This early step makes it easier when they are older and get offers of credit in the mail. They KNOW that it must be paid. Late payments can hurt your credit even more than having no credit.
Obtain a copy of your credit report. Annual Credit Report was set up by the federal government to ensure everyone had access to one free copy of their credit report per year.
Examine the report – Dispute all items you disagree with and document it! Keep all records of this forever. If you paid off an account and it shows they charged it off, find that check! It is the only way to remove the incorrect information.
Create a plan to improve your credit. Either open new account to have 3 or design a plan to pay down accounts. Make all of your extra payments to one card at a time. Once an account is paid off, decide if you really need it and if you don’t close it.
Chrys Hoduffer (outside contributor)
Mortgage Loan Officer – 110248