News
With financial markets ever more restrictive about who can obtain financing, now is the time to be reviewing your credit and assessing how you can improve it.
In today’s economic climate, those with excellent credit scores will be the people who are given favorable financing terms. And those with tarnished credit might find that credit cards, auto loans and home loans are out of reach.
Perhaps you’ve had a history of making a few late payments. From this day forward, if you want to increase your credit scores, the best way is to get current and stay current with every one of your creditors.
Build a solid payment history by paying the full payment due each month and making sure that your payment reaches the company prior to the due date. Try not to run up debt to the maximum or even close to it.
The 40 percent rule
A good rule of thumb is to use no more than 40 percent of the credit available to you. If you’re carrying over 40 percent on your cards now, pay down those debts — don’t move them around to another creditor and don’t suddenly pay them to zero. Use the 40 percent rule and your FICO scores will improve.
Stay put
One more note on moving credit around to get zero percent interest or another type of deal: The credit scoring companies monitor this behavior and take points away from your score when they see it.
Moving balances around is viewed as inability to pay down debt plus it exhibits short term relationships with creditors which is not advantageous.
Show a long credit history with the same creditors even if you’ve had blemishes on your credit.
Again, you get brownie points for maintaining long relationships with lenders/creditors. It shows stability and reliability — two factors that play into the FICO rating system.
Furthermore, creditors that have a long history with you are more likely to work with you to clear a delinquency from your credit because they value your loyalty, and they want your business.
Don’t exceed your need
Frequently clients ask me if they should open new credit cards to prove that they are credit worthy when trying to repair credit.
Only apply for credit you need. Try to limit yourself to between three and six open lines of credit. Ideally it’s a mix of credit cards, a couple of mortgages, maybe a student loan, a gasoline card and perhaps an auto loan.
And use that credit consistently but responsibly. Even if you’re just charging $50 monthly on a gasoline credit card, you’re establishing a track record for on-time payments. Not using credit can hurt you as much as overusing it.
Your available credit
Perhaps you have been carrying lots of credit cards around and someone told you to close the accounts that you’re not using in order to improve your scores.
This is not effective for the following reason: Closing down credit accounts lowers the total credit available to you and makes any remaining balances you have carry greater weight in credit score calculations. Certainly avoid closing your oldest accounts because doing so will lower your average account age and again, FICO likes “golden oldies.”
Susan Costello is owner of Home Sweet Home Loans. You may reach her 24/7 by calling (530) 273-8658.
In today’s economic climate, those with excellent credit scores will be the people who are given favorable financing terms. And those with tarnished credit might find that credit cards, auto loans and home loans are out of reach.
Perhaps you’ve had a history of making a few late payments. From this day forward, if you want to increase your credit scores, the best way is to get current and stay current with every one of your creditors.
Build a solid payment history by paying the full payment due each month and making sure that your payment reaches the company prior to the due date. Try not to run up debt to the maximum or even close to it.
The 40 percent rule
A good rule of thumb is to use no more than 40 percent of the credit available to you. If you’re carrying over 40 percent on your cards now, pay down those debts — don’t move them around to another creditor and don’t suddenly pay them to zero. Use the 40 percent rule and your FICO scores will improve.
Stay put
One more note on moving credit around to get zero percent interest or another type of deal: The credit scoring companies monitor this behavior and take points away from your score when they see it.
Moving balances around is viewed as inability to pay down debt plus it exhibits short term relationships with creditors which is not advantageous.
Show a long credit history with the same creditors even if you’ve had blemishes on your credit.
Again, you get brownie points for maintaining long relationships with lenders/creditors. It shows stability and reliability — two factors that play into the FICO rating system.
Furthermore, creditors that have a long history with you are more likely to work with you to clear a delinquency from your credit because they value your loyalty, and they want your business.
Don’t exceed your need
Frequently clients ask me if they should open new credit cards to prove that they are credit worthy when trying to repair credit.
Only apply for credit you need. Try to limit yourself to between three and six open lines of credit. Ideally it’s a mix of credit cards, a couple of mortgages, maybe a student loan, a gasoline card and perhaps an auto loan.
And use that credit consistently but responsibly. Even if you’re just charging $50 monthly on a gasoline credit card, you’re establishing a track record for on-time payments. Not using credit can hurt you as much as overusing it.
Your available credit
Perhaps you have been carrying lots of credit cards around and someone told you to close the accounts that you’re not using in order to improve your scores.
This is not effective for the following reason: Closing down credit accounts lowers the total credit available to you and makes any remaining balances you have carry greater weight in credit score calculations. Certainly avoid closing your oldest accounts because doing so will lower your average account age and again, FICO likes “golden oldies.”
Susan Costello is owner of Home Sweet Home Loans. You may reach her 24/7 by calling (530) 273-8658.
