AEM Mortgage Minute with Deanna Daughhetee

One of the first things you should do before trying to improve your credit score is obtain a copy of your credit report and see where you stand. Requesting a credit report directly from the credit reporting agencies will not affect your score, even though many people believe this to be the case. Check your report for accuracy and dispute any items that may be incorrect since the errors may have a negative effect on your FICO score as well as cost you additional interest as a result of higher interest rates. For example, loan or credit card payments can mistakenly be applied to your account or reflect an open balance even though you have paid the account in full. If so, contact the reporting agency immediately to correct any errors. It’s also imperative that you apply for credit under only one name and not variations of your name. Many times simple clerical errors happen, and the wrong social security number is keyed or misread. It’s a good idea to check your credit report once a year to make sure it is accurate.

Good credit is established when you pay your bills on time. Late payments and collections can have a negative impact on your score. As you establish your credit history and pay your bills on time, the better your score will be. It’s as simple as that. If for any reason you think you can’t make your payments, contact your creditors immediately. An account that goes to a collection agency will not be removed from your credit report. Even after you pay it off, it will remain on your credit report for seven years. Your creditors are much more likely to work with you and establish a fair repayment schedule if you take a proactive approach and contact them before you fall behind.

One of the strongest ways to improve your credit score is to keep your balances low on “revolving credit”. High balances can affect your score. Opening new credit cards that are unnecessary and increase your available credit is also a bad idea, since it can actually lower your credit score. However, you need to watch your total balance compared to your total available credit. If you are maxed out, it will also reflect negatively on your score.

If you do transfer balances from one credit card to another to take advantage of a lower rate, be certain to close out the “old” card that now has a zero balance and request that the credit card company reflect it as a closed account on your credit report unless closing it maxes out your available credit.

Credit cards and installment loans will improve your score over time, as long as you’re paying on time and managing them responsibly.

If you currently have or have had credit problems, it is possible to re-establish your credit history by opening new accounts, paying them on time and managing them responsibly. Many times this is why someone will refinance their home and consolidate their debt. It may allow them to reduce their current monthly payments and at the same time give them a fresh start and allow them to begin to rebuild their credit history. It will not happen overnight, but with the right strategy it is possible.