Tips To Improve Your Credit Score
Diane Gogar • July 22, 2020
Your credit score is critical to you obtaining credit. Applying for a car loan, a consolidation loan, a line of credit, a mortgage, or even a cell phone can be a challenge if your credit score is low. Your application may de declined or you may get a higher rate on credit if your score is low. The lower the score, the higher the risk and the higher the interest rate. Lenders are not comfortable lending to a client with late payments or collections on their credit bureau.
Your credit score is also very important to a landlord. You may be turned away from renting an apartment if there are late payments on your credit bureau. This is a high risk application because it tells the landlord that the rent payments will be late, if credit card payments or loan payments are late.
Why is having good credit important?
A bureau that shows payments on time tells a lender that this client is responsible towards credit and will be responsible in the credit applied for. Lender feels inclined to lend here.
A bureau that shows a lot of credit cards with high balances tell a lender that this client may be using credit cards to supplement their income, or is a big spender. This scenario will result in a lower credit score and can result in less money being lent by the borrower and also a higher interest rate.
A bureau with constant late payments and collection items say that this client is irresponsible towards his obligations. Lender may require security for a loan in this instance because the likelihood of their loan not being paid is high. The lender may decline application even if there is security, because they do not want to take on the risk of non-payment.
So what should you do to keep your credit score high, or to improve your credit score?
- Make all payments on time, even if it is just the minimum. A one day missed payment is registered as a 30 day late payment on your bureau. You can make this easy by paying online, or setting up a pre-authorised minimum payment by the credit card company.
- Keep credit cards balances below half of the limit. If a card limit is $5000.00, your goal should be to keep the balance around $2000.00. The ideal would be to stop using credit card until you have brought the balance down to below half.
- Pay telephone bills on time. Yes, phone bills are registered on your credit bureau. If there is a dispute with a phone company, pay the bill before it goes into collection and then continue the dispute. The phone company sends uncollected bills to a collection company. It is registered on your bureau as a collection item and causes a huge drop in your credit score.
- Do not close off credit cards until you confirm the balance is zero. Sometimes there is an interest payment, depending on the date you close off card and you may think the card is paid off, but there is a small balance, which if goes unpaid will register as a late payment.
- Do not close card until card is paid. Sometimes, a client may have a balance on a card and doesn’t want to use it anymore. So they cut it up and continue making payments . They ask the credit card company to close the account. The credit card company puts a message, ‘closed by credit grantor.’ This results in a R9 on the credit card and affects a credit score badly. It is a reason for an application to be declined. It says to a lender that client could not pay the card and the credit card company closed it .The other side of asking a credit card company to close off a card when it is fully paid, is a message on the bureau, is ‘closed by consumer.’ This is a good message, It says you no longer wanted the card and you paid it off. It says you can handle credit responsibly.
It is important to check your credit at least annually to ensure everything is well with your credit and there are no mistakes. These can be other credit cards or loans or collection items that do not belong to you. - Your credit card limits should be at least $2500 or more. If you have one card with a limit of $1000.00 it does not give a lender a correct picture of how you can handle credit, if you are applying for a mortgage of $500000.00
Aim for 2 cards with at least $2500.00 limit.
Credit cards and loans are necessary to building a healthy credit bureau. These must be used responsibly so that you can have a better score, and hence get the necessary and intelligent credit you require for your present and future financial goals.
If you have any questions about how to improve your credit score, please contact me directly.
You’d think an online calculator is a pretty straightforward device, one that you should be able to place your confidence in, and for the most part, they are. Calculators calculate numbers. The numbers are reliable, but how you interpret those numbers, not so much, especially if the goal is mortgage qualification. If you rely on the numbers from a “What can I afford” or “Mortgage Qualification” calculator without talking to an independent mortgage professional, you’re going to be misinformed. Don’t be fooled. Even though an online mortgage calculator can help you calculate mortgage payments or help you assess how additional payments would impact your amortization, they’ll never be able to give you an exact picture of what you can afford and how a lender will consider your mortgage application. While mortgage calculators are objective, mortgage lending isn’t. It’s 100% subjective. Lenders consider your financial situation, employment, credit history, assets, liabilities, the property you are looking to purchase. Then, they will compare that with whatever internal risk profile they are currently using to assess mortgage lending. Simply put, they don’t just look at the numbers. An online calculator is a great tool to help you run different financial scenarios and help assess your comfort level with different payment schedules and mortgage amounts. However, if you rely on an online calculator for mortgage qualification purposes, you’ll be disappointed. The first step in the mortgage qualification process is a preapproval. A preapproval will examine all the variables on your application, assess your financial situation, and provide you with a framework to buy a property based on your unique circumstance. Securing a preapproval comes at no cost to you and without any obligation to buy. It’ll simply allow you the freedom to move ahead with confidence, knowing exactly where you stand. Something a calculator is unable to do. Please connect anytime if you’d like to talk more about your financial situation and get a preapproval started. It would be a pleasure to work with you.
Divorces are challenging as there’s a lot to think about in a short amount of time, usually under pressure. And while handling finances is often at the forefront of the discussions related to the separation of assets, unfortunately, managing and maintaining personal credit can be swept aside to deal with later. So, if you happen to be going through or preparing for a divorce or separation, here are a few considerations that will help keep your credit and finances on track. The goal is to avoid significant setbacks as you look to rebuild your life. Manage Your Joint Debt If you have joint debt, you are both 100% responsible for that debt, which means that even if your ex-spouse has the legal responsibility to pay the debt, if your name is on the debt, you can be held responsible for the payments. Any financial obligation with your name on the account that falls into arrears will negatively impact your credit score, regardless of who is legally responsible for making the payments. A divorce settlement doesn’t mean anything to the lender. The last thing you want is for your ex-spouse’s poor financial management to negatively impact your credit score for the next six to seven years. Go through all your joint credit accounts, and if possible, cancel them and have the remaining balance transferred into a loan or credit card in the name of whoever will be responsible for the remaining debt. If possible, you should eliminate all joint debts. Now, it’s a good idea to check your credit report about three to six months after making the changes to ensure everything all joint debts have been closed and everything is reporting as it should be. It’s not uncommon for there to be errors on credit reports. Manage Your Bank Accounts Just as you should separate all your joint credit accounts, it’s a good idea to open a checking account in your name and start making all deposits there as soon as possible. You’ll want to set up the automatic withdrawals for the expenses and utilities you’ll be responsible for going forward in your own account. At the same time, you’ll want to close any joint bank accounts you have with your ex-spouse and gain exclusive access to any assets you have. It’s unfortunate, but even in the most amicable situations, money (or lack thereof) can cause people to make bad decisions; you want to protect yourself by protecting your assets. While opening new accounts, chances are your ex-spouse knows your passwords to online banking and might even know the pin to your bank card. Take this time to change all your passwords to something completely new, don’t just default to what you’ve used in the past. Better safe than sorry. Setup New Credit in Your Name There might be a chance that you’ve never had credit in your name alone or that you were a secondary signer on your ex-spouse’s credit card. If this is the case, it would be prudent to set up a small credit card in your name. Don’t worry about the limit; the goal is to get something in your name alone. Down the road, you can change things and work towards establishing a solid credit profile. If you have any questions about managing your credit through a divorce, please don’t hesitate to connect anytime. It would be a pleasure to work with you.
