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04.21.20

How Your Personal Finance Habits Impact What Home You Can Buy

How Can I Improve My Personal Financial Position?

It can be difficult to purchase or refinance a home with a bad credit score. This leads people to ask, is there anything I can do to quickly fix my score? Many people with bad credit think there is no foreseeable way to improve their situation. That’s simply not true.

Depending on your situation, you might be able to improve your credit score by 100 points in fairly short order.

Like many things, it’s relatively easy to go from bad to good. It’s always much tougher to go from very good to great. So the worse you score, the easier it is to make big improvements. Rather than be resigned to a low credit score for life, take action now using these tips to increase your credit score. You’ll find the path is much easier than you’d imagine.

Along with following this advice, it’s suggested you reach out to a personal loan officer. They can help you identify the score you’d need to achieve to qualify for various programs and loan types.

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Good Financial Habits: Check Your Credit Report

This might surprise you, but lenders and credit reporting bureaus make mistakes. When they do, it’s rarely in your favor. More often than not, their mistakes hurt your credit score.

So what can you do? Check and verify the accuracy of your credit report. Oh, and check your credit report the right way. By law, you are allowed to request a free credit report from each of the three major credit reporting bureaus: Experian, Equifax, and TransUnion. We suggest requesting your credit report from AnnualCreditReport.com. It is the only source for free credit reports that is authorized by U.S. law.

What should you look for in your credit report? Start with outdated information. Items such as late payments, bankruptcy, foreclosure, or loan delinquency can only remain on your credit report for seven years.

Also, look for any payments that have been marked late when you paid them on time.

If you find errors, you will need to file a dispute to have it removed. Once you file a dispute, the credit bureau will have 30 days to investigate and respond.

Good Money Habits: Keep Your Credit Cards Open

When people are rebuilding their credit score, they often hear that it is a good idea to pay off a card and cut it up. We kind of agree.

Cutting up the credit card is okay, but what you don’t want you to do is cancel the account or give the lender a reason to cancel it.

Lenders like to see borrowers with long-established credit histories. In fact, your credit history is a primary factor in establishing your FICO credit score. If your credit lines and loans only date back a few years, you’ll have a tough time earning a good credit score. This is why young borrowers are rarely rated well, even if they have good incomes and perfect payment records.

We recommend letting any current lenders continue sending you a statement each month showing a $0 balance. In some cases, you might have to use the card occasionally so the borrower doesn’t cancel your account. So make a simple purchase and pay it off right away. Also, always make sure the credit cards you hold onto for credit history value do not have annual fees.

Another big benefit of keeping your credit card accounts open is helping to keep your credit utilization score down. More credit, especially open, unused credit, is very beneficial.

Best Personal Finance Habits: Making Micropayments

The number-one factor in determining your credit score is payment history. Paying on time shows lenders that you are a reliable borrower. However, there’s another way to improve your score that doesn’t require years and years of on-time payments. It’s a technique called micropayments.

Micropayments are exactly what they sound like, tiny payments toward your credit balance. The key difference is that you make micropayments frequently. Rather than waiting for the monthly statement to arrive, you make micropayments as often as possible. Ideally, you’d make a micropayment as soon as you used your credit card to make a purchase. With online credit card payment systems, making credit micropayments is a very easy habit to begin and maintain.

Why would micropayments make a difference? It’s connected to something called credit utilization.

Credit utilization is the amount of credit availability you have, versus how much you use. Lenders like to see a credit utilization of 30% or less — for example, having a credit line of $1,000 and only carrying $300 or less at a time. Therefore, every time you make a micropayment, you are decreasing your credit utilization and making yourself a more attractive borrower.

Micropayments are perhaps the fastest way to boost your credit score.

Positive Money Habits: Raise Your Credit Limit

There’s an easy and legal way for you to game the credit score system and instantly readjust your percentage of credit utilization. Just ask your borrower to raise your credit limit.

While micropayments work to reduce your credit balance, raising your credit limit will have the exact same impact, plus it won’t cost you a penny. Allow us to explain.

Suppose you have a credit limit of $1,000 and a balance of $500. That gives you a credit utilization of 50%, a full 20% higher than borrowers and credit rating bureaus like to see. If you call your credit card company and get them to raise your credit limit to $1,500, suddenly your $500 balance only accounts for about 33% of your credit utilization, which is just 3% higher than the ideal target of 30%.

What’s the downside to doing this? None, as long as you can control any impulses to use that increased credit availability.

Advanced Money Habits: Become an Authorized User

If you are lucky enough to have a family member or close friend with a good credit score, they can help boost your credit score, too. Ask them to list you as an authorized user on one of their credit cards. Doing this ties you to their credit rating and creates a halo effect that improves your score.

Among the reasons why this boost occurs is credit history. The longer your credit line history with a lender, the better your credit score. So if you can find someone willing to list you as an authorized user, it’s most helpful if they connect you to one of their longest-held credit cards.

Assure your family member or friend that you won’t have to have the credit card, use the credit card or know the credit card number. You just need to be listed as an authorized user. That said, as an authorized user, you will have access to the account, so there is some risk.

This option requires trust between the cardholder and you. That’s why it’s usually best to ask a family member. Don’t be upset if people say no. They worked hard to build their credit score and can be highly protective of it. However, if you can find someone willing to help, it can be a big win for your credit score.

Changing Money Habits: Mixing Your Credit Types

If you only have loans, apply for a credit card. If you only have credit cards, apply for a loan. Lenders like to see you have success handling payments for multiple types of credit. The difference in their eyes is the type of credit payment. With revolving credit (such as a credit card) you decide on the payment amount to make each month. With installment credit lines, the payment amount is fixed (like a car loan). Building up a broad credit mix will give credit reporting agencies reason to boost your FICO credit score.

How to Save to Buy a House: Improve Your Credit Score

You have the power to improve your credit score quickly and with very little effort. In fact, many of these ideas, such as checking your credit report, requesting a credit level increase and opening new lines of credit can be done today and won’t cost you any money. Take action. You deserve to have the best credit score possible, and there’s no good reason to wait. Also, connect early with a personal loan officer and check in with them often. They can be your guide to help you qualify for the right program.

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