Let’s talk about Credit Reports… Ugh, I know! But one of the key parts of this preparation is improving your credit score. The higher the score, the higher your chances of being approved for a mortgage, and the better your options.
What is a credit report?
The best way to think about it is as a biography of your loan payment history. This biography is written by all companies that have lent you money. What we want to do is make sure the companies writing this biography are reflecting the proper information and telling the full story. Sometimes that story has highs and lows due to joblessness, illness, etc. It is what we do with this story today, that will help write the chapters of our future. So, let’s break down the outline of your credit biography.
Below is a list of what is included on your credit report:
- Current name and previously used names
- Current and previous addresses
- Current and previous employers
- Social Security Number
- Credit Inquiries
- Credit accounts and reports from creditors
- Information from collection agencies
- Financial information regarding:
- Lawsuits/ judgments
- Wage attachments (e.g. child support payments)
- Liens on property
When a lender or creditor reviews your report, they are looking through all of the above information to make their determination. They also use a credit score which reflects all of this information. The higher the score, the better. Our goal is to show them a clean and current payment history going forward.
How do I improve my credit?
So, our Number 1 tip, and likely the most important choice moving forward…
No Late Payments
This includes credit cards, utilities, medical bills, rent, cars, personal loans, student loans, mortgages, etc. Just one late payment can keep your credit score low, but also prevent a mortgage approval for a year or more from the time of the late payment. So first things first, let’s make sure to pay everything on time.
If you are concerned about your ability to make an on-time payment, immediately contact the creditor. It is amazing what can be accomplished by simply calling, explaining the circumstances, and putting together your plan for when you will make your payment.
What else can I do to?
Here are some other tips to increase your credit score:
- Avoid high balances on your credit cards. If you are close to your credit limit on your credit cards, lenders may think that you carry too much debt already. Try to limit your credit utilization on any given card. You can aim for as low as 10%-20% utilization.
- Consolidate your loans. If you carry debt on a number of cards, look into a “debt consolidation loan”. Your bank may be able to help you get one. This will not only improve your credit but could also significantly decrease your monthly payments.
- If you don’t have much credit history, build it up. If you only have a couple of items on your credit report, you have what people in the industry call a “thin file”. It may help you to open a secured credit card account. Make sure you then pay off your balance each month.
- If there is anything on your credit that you don’t recognize, get in touch with your credit bureau. They can make mistakes, and when they do they will help you fix them.
Now is not the time for letting others write our stories. Let’s take up the pen and turn our credit biographies into our own narratives.