After inquiring about a home loan in 2005 and attending a first-time homebuyer’s class, Norfolk, Virginia, resident Patricia Yancey decided to boost her credit score so that she could increase her chances of being approved for a mortgage at a favorable interest rate. A loan officer at a local bank told Yancey that she qualified for a loan. However, the monthly payments exceeded Yancey’s budget. Yancey had outstanding bills and several credit cards, mostly from retail stores. Soon the housekeeper, 57, started doubling her credit card payments. Within four years, Yancey boosted her credit score from 546 to 772. That month she was approved for a loan, and Yancey purchased her home in January 2009.
Having the ability to obtain an affordable home loan is only one example of how it pays to have good credit. Your insurance premiums will also be lower if you have a high credit score. “An excellent credit score is 750 or higher; 680 to 740 is good. The lower 600s would be considered fair. Anything below that is poor or subprime,†says Ben Woolsey, director of marketing and consumer research for CreditCards.com, a consumer advocacy Website. What’s more, your credit report could prevent you from getting hired or promoted. “Employers look at credit reports and conduct credit risk assessments to determine an applicant’s level of responsibility and debt liability,†said John Ulzheimer, president of consumer education for Credit.com, another consumer advocacy Website. “In the current economy, the last thing you want is for your credit report to get between you and a job.â€
The rules for boosting credit have not changed in light of the new Credit CARD Act. “The rules have stayed the same: Pay bills on time, keep credit card balances low, and avoid bankruptcy and foreclosure,†says LaToya Irby, credit and debt management expert for About.com.
If you’re looking to increase your credit score, make sure you follow these tips:
Pay your bills on time. If you have a lot of debt, pay it down. If you’re behind on payments, catching up would be the fastest way to boost your credit. “Miss a meal before you miss a payment. Once you start missing payments, it’s only a matter of time before you hit ground zero. The longer you go past due, you have to deal with tax liens, bankruptcies and repossession,†says Ulzheimer.
Keep your credit utilization ratio as low as possible. Credit utilization looks at your total used credit in relation to your total available credit. It’s best to utilize as little of your available credit as possible. Don’t charge high-cost items on your credit cards unless you can pay it down right away.
Have incorrect negative information removed from your report. Check your credit report annually. If you notice any mistakes, dispute them. It usually takes 30 to 45 days for complaints to be processed. “There could be erroneous reports that were sent to collections agencies,†says Irby. “Myfico.com posts the credit score used most by lenders. In addition, Creditkarma.com offers free credit reports, but they are provided by TransUnion, not FICO.â€
Apply for credit when you need it, but don’t apply excessively.
“Inquiries count toward 10% of your credit score,†says Ulzheimer. “The damage that one inquiry can cost lasts a year. If you plan to buy a car or a home in the next year, think wisely about inquiries.†That retail store credit card that will save you 10% every time you use it isn’t worth it. Although, “your credit report should include various types of credit: Auto loans, credit cards and mortgages,†says Woolsey. “If you’re shopping for a loan for a car or home, shop within 45 days. Loan inquires that occur with a 45-day period are counted as one inquiry, said Ulzheimer.This article originally appeared in the January 2010 issue of Black Enterprise magazine.