Back to Basics: How to Improve Your Credit Score
In our previous article, we discussed the fundamental bits of information necessary to understand the basics of your credit score. As you are probably already aware, your credit score impacts what houses are affordable to you long term. If you were not aware of that, take a moment to read that article first. In this article, we will briefly discuss how to increase your credit score, bringing your dream home within your grasp.
Just Because it’s a Credit Reporting Agency’s Job to Calculate Your Credit Score, it Doesn’t Mean They Are Good at it – Always Check for Errors.
If you take a moment to reflect on your credit score, I am sure there are a number of instances that you can point to as a reason for the current state of it. However, this is not always entirely accurate, credit reporting agencies (“CRAs”) are imperfect entities. A CRA generates it’s credit score based on a myriad of factors, but keep in mind that whether or not you are up-to-date on your credit payments (as reflected on your credit score) is not based on information the CRAs generated themselves.
When you take a line of credit, the actual lender is the entity who reports your payment history to the CRAs. This means that a lender (also known as a “furnisher”) could incorrectly alter your credit score either inadvertently, or intentionally. As such, it is critical that you review your credit report thoroughly, there might be a few mistakes; correct those mistakes, and your credit score goes up.
Luckily, we have the Fair Credit Reporting Act (“FCRA”) and the California Consumer Credit Reporting Agencies Act (“CCRAA”) to assist you in correcting your credit report. Remember, people make mistakes at your job, and people make mistakes in their jobs – just because your credit report says one thing, doesn’t mean it is accurate – double-check their work, it could save you thousands.
Pay Down Your Debts
It may seem like common sense, if you want to improve your credit you should pay down your lines of credit. However, many people neglect to think long-term (e.g., that money is necessary for expenditures now); you may have to tighten your belt now, but you will have more money available later vis-à-vis your increased credit score.
As noted in the previous article, your debt-to-credit ratio accounts for 30% of your credit score, and your credit score represents thousands of dollars in interest payments if you are even able to get a loan for a house. This does not mean you need to pay the entire line of credit off, you just need to reduce your balance to a point that is less than 20 -30 percent of your total credit limit – that doesn’t sound so bad does it?
Get a Secured Loan or Credit Card
Most banks are aware the current generation’s credit-struggle and have come up with a solution: pay us up front, and we will give you a line of credit. Essentially, the money you paid acts as a security deposit should you become delinquent. Other than that, it operates exactly like a credit card for purposes of your credit score.
At the Chernov Team, we take pride in our ability to help our clients; everybody deserves to live their lives in their dream homes. However, lenders are not eager to make sizeable loans to people they don’t believe will pay them back. As such, it behooves you, the would-be purchaser, to have as high a credit score is possible. At the Chernov Team we understand that whoever comes to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most.