Buying a home in the spring 2011 home buying season with lousy credit scores is going to be difficult, even for the often touted lenient government loan programs like FHA loans, USDA loans and VA loans. If your plan is to become a homeowner in 2011 – not a bad thing to consider since mortgage rates are very low and home prices are the best they have been in the past 8-10 in many parts of the country – then you may want to take the steps to ensure that your credit scores are ready to go.
If you are going to work on improving your credit scores then one place where you can quickly gain some ground is with your credit card accounts. Follow any or all of these tips below and you should find some pretty quick changes in your scores.
- Open your mail immediately. Letting your credit card mail sit on the shelf until you are ready to pay the bills is a mistake. Credit card companies mail all kinds of notices etc. to their customers. You might be getting a past due notice that you didn’t realize you were getting, or an over the limit notice, or even a notice of fraudulent activity. Open it first, then put it down if it is just your bill.
- Check your credit report and scores. It is a good idea to get a copy of your credit report at least annually so you can check for accuracy, mistakes and any possible identity theft. You will also get ahead on being able to fix your scores if you thought you had higher scores than you really do.
- Pay down holiday shopping debt. Paying down your debt is always good not only for your pocketbook and wallet going forward, but for your scores too.
- Use any inactive accounts. Credit scores are determined by your use of your full credit profile. Older accounts with activity show long term financial stability which can add some points to your scores. Credit scores “like” older credit accounts.
- Don’t close accounts. Similar to using your older inactive accounts, older accounts that are still open will add to your credit scores. It seems counter intuitive that closing a credit account could lower your scores, but chances are if you do you will see your scores go down. Keep those old accounts open – and use them from time to time.
- Don’t pay collection accounts. Paying off collection accounts can hurt your scores in the short term which could hurt your chances of getting a mortgage in the spring 2011 real estate buying season. Paying your bills is good, but check with your loan officer about paying collection accounts – in most cases you’ll either not have to pay them to get your mortgage or you’ll have to pay them when you get your mortgage. In either case, if your scores are good enough with the collection account showing on your credit report leave alone as paying it could set you back a few months until your credit scores rebound.
- Don’t charge over your limit. Charging past your credit limits is a big no no when it comes to your credit scores. To an underwriter it shows that you can’t manage your money and finances which could lead them to declining your mortgage application. Know your limits and live within them.
- Pay credit card balances to less than 30% of the credit limit. Speaking of limits, keep your balances under 30% of your limits for the best credit scores possible. The next cut off is 50%. Paying down or paying off one credit card from over 50% to under 30% of its limit could raise your scores by as much as 30 points. This could make a huge difference if you are just on the borderline of qualifying or not.
- Ask for higher limits. One way to improve your scores is by getting your credit card company to increase your account limit. In most cases, you will only get a limit extension in the case where you have an excellent payment history with your credit card company and that you are not already approaching your limit. If you pay your bill off every month and make your payments on time then you’ll likely get the extension that you ask for.
While these are not all the ways that you can use to improve your credit scores they are some of the best and quick ways you can impact your scores without having to get anyone else involved in your financial affairs. If you are working with a loan officer to get a mortgage and have lower scores, ask them for some guidance in setting up a strategy to improve your scores.