Your credit score directly affects the interest rate you will qualify for when applying for a mortgage. Your score tells a lender very quickly and efficiently how likely you are to default on a loan. The lower the Credit Score, the higher the interest you will pay – because the lender has to take on more risk to lend you money based on your payment history. Improving your credit rating will save you money!
Tip # 1 Bills – Pay all of your bills on time. Late payments (payments that are 30 days late or more) have a negative effect on your credit rating. At minimum make sure you are paying something toward each bill every month to avoid going into collections.
Tip # 2 Credit Cards – When your credit is being repaired you shouldn’t cut up your credit cards. If your credit is bad, you may not be able to gain additional credit cards later. Be selective about the ones you keep, and its not enough to just stop using the additional cards, you need to write to your creditors to request that they close your accounts. A great way to re-establish your credit is to get a secured credit card. You will have to keep a designated amount of money in an account that will be sufficient to cover your charges, Make payments on time.
Tip # 3 Limits – Keep the charges on your credit cards way below their limit. The total amount of available credit is considered by lenders even if you owe nothing. Lenders also look at how close you spending is to your account limits. If you keep your credit cards close to the maximum limit it shows the lender that you are over-leveraged. So keep your limits reasonable (not higher than necessary) and keep your charges on your credit cards below 50% of their limit.
Tip # 4 Bankruptcy and Tax Liens. Avoid bankruptcies, tax liens (a lien for not paying state or federal income taxes or property taxes) and collections. A bankruptcy stays on your credit report for up to 10 years. Collection accounts and paid tax liens stay on for seven years, and unpaid tax liens will haunt you forever.
Tip # 5 Check it! Get a free yearly copy of your credit report to keep tabs on your progress and to catch any errors. You can get a copy of your credit report free at annualcreditreport.com.
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