Trends for 2020 indicate that the housing boom will continue, with the forecast being a seller’s market.
If you are a buyer, finding the perfect house might be the easy part. Securing the financing, you need to close the sale could be the hardest part of the whole process.
Rather than trying to figure out if you will be approved for a loan or what your qualification challenges could be, you can proactively take care of your credit health and be on solid financial footing when the time comes.
Three Credit Agencies
Your credit score contains a wealth of information about your financial history, and lenders will look at this data when determining your creditworthiness. Three credit scores make up your credit history, and three separate reporting agencies calculate each score.
The reports might have some differences as far as the actual score, but the bulk of the information in your credit report will be the same. Before you approach a lender and complete an application, check to see which reporting agency they rely on for their information. Lenders aren’t the only ones that use your credit score for decision-making.
Insurance companies look at your credit report to determine the risk they might be assuming with your account, as they look at payment history and your overall financial behaviors. Potential employers may take a look at your credit report as well as utility companies and cellular service providers.
Apartment leasing procedures also rely on a credit report to give the landlord an idea about how reliable the potential tenant may be. Any check on your score could include one or all of the reporting agencies, and though the formula for generating a score is complex, the process for keeping your score high is rather simple.
Consistently Check Your Credit Report
In order to stay aware of what is happening to your credit, you should check your credit score once a year. There are several places where you can go online to retrieve your score, but you need to make sure that it is a reputable, legitimate organization providing your information. You don’t want to be handing over your personal information to someone hoping to sell it on the dark web.
You should periodically check your report, but spread out at least once a quarter. By knowing what is on your report, you will be more apt to notice suspicious activity or even an error in reporting. Put dates on your calendar at the beginning of the year as a reminder to check your report. If there is an error, you can dispute it with the reporting agency that is posting the account data.
Don’t Cancel Your Credit Accounts
The age of your credit history determines part of your credit score. It is best to pay down your cards and keep the limits clear, but it can hurt your score if you decide to cancel the card. Your credit score needs several open credit lines in good standing and that have been open for a length of time to show a lender good credit management practices.
With things like auto loans or mortgage payments, you don’t have a choice but to have the account closed. Lenders understand the differences between term loans and revolving credit lines. You can keep your cards active, making a purchase at least once a year and immediately paying the balance in full.
Keep Your Payments on Time
The most significant factor impacting your credit score is your payment history. This accounts for about 35% of your credit score. One missed, or late payment could damage your score by up to 100 points. Late payments to your mortgage or auto lender can be extremely damaging, and your payment history will be reported every thirty days.
Although you might prefer to make your payments by mail, there is a potential for a lost check to damage your payment history. There are several ways you can avoid this hassle.
First of all, you can issue your payment ten days before the due date. Check your account until you see the payment posted, or monitoring your checking account to see when the funds are withdrawn. You can also use electronic bill pay to set up an automatic payment for the minimum amount due on the account.
There are several free apps that you can download to your mobile device, tablet, or computer that will issue reminders about the due dates for your bills. If you aren't able to make a payment on time, contact the lender as far in advance as you can, as the lender may be able to extend a grace period or restructure your payment deadline to meet your financial situation.
Pay Down Your Debt
Filing for bankruptcy will stay on your credit for years. Many assume this is the best way to get out of a heavy debt burden, but this isn’t always the case. If you have several accounts where the limits have been maxed out, create a debt repayment plan. Some prefer to start with the lowest balance accounts first, while others start with the highest interest rate accounts first.
Your credit utilization, or how much of your credit has been used, accounts for about 30% of your score, so it can really drag your scores down when the limits are too high. Paying your cards down to below 30% of the available funds shows strong credit management. Paying your balances down can give your score a considerable boost.
If your score needs a boost, you can also request the lender to increase the card limit. Use this as a last resort, since you may be tempted to use the extra funds available to make another purchase.
Your credit can take years to develop, but only a few bad choices to destroy. Without strong credit health, it will be difficult for you to get the approval you need for major purchases, but it can also increase the amount of money you pay over the years for your financing. Interest rates are often issued according to creditworthiness, so you will save money by having a healthy credit history.
Michael launched Your Money Geek to make personal finance fun. He has worked in personal finance for over 20 years, helping families reduce taxes, increase their income, and save for retirement. Michael is passionate about personal finance, side hustles, and all things geeky.