Building Your Credit Score

Building credit is something that takes time and patience. There isn’t a straightforward way to get a higher score in short amount of time. Buying a home is a big step and even if you’re not in the market currently it is always a good idea to think ahead and get your credit in a good place so when you are ready to make the step to buy a home, be it your first home or your next home, your credit won’t hold you back. I’ve listed some guidelines below that will give you a better understanding on how to build your credit and what lenders will look for.

Use free services to monitor your credit score. Personally I love www.creditkarma.com. They are great at breaking down all things that effect your credit; age of credit, payment history, credit card utilization, credit pulls, etc. They also explain what you can do to build your credit along with offering you credit cards/loans you will likely qualify for. They will also email you monthly to let you know the progress of your score and if your credit has been pulled. In order to build your credit you’ll need to know where you currently stand and what shows on your credit bureau. And it’s free!

Clear up any collections and judgments. Anything on your credit that shows as a collection or judgment is detrimental to your credit. It is best to pay those off first in order to start building your credit.

Always make your payments on time. Even if you haven’t always been able to it is important to your credit score that you start making all your payments on time, even if it is just the minimum. Lenders will look to see how you have made payments in the past because they will want to be paid on time so be sure to give them something promising to look at.

Keep old lines of credit open. If you are in your early twenties and looking to buy your first home chances are you don’t have a lot of long standing lines of credit. It’s wise to keep open lines of credit that are older, even if it is just to pay for a monthly subscription to Netflix. As long as you charge the account and then pay it each month it will report that you are using that long lasting account and your credit score will show for it.

Try to have multiple lines of credit open Building credit is a balancing act. You want to have multiple lines of credit open however you don’t want to pull your credit often or have a lot of new debt. Having no credit is just as bad as having bad credit. Lenders want to see how you’ve done paying your debt, if you have nothing to show them they won’t be confident in lending you money. It’s best to slowly open lines of credit and pay them every month and on time. It takes time.

Do not have your credit pulled until you are ready. Every time you have a lender pull your credit it “dings” your score. “Dings” don’t dramatically lower your score but if you pull it multiple times in a short amount of time it could lower it enough to worry some lenders. Beware of websites that send your info to multiple lenders to pull your credit. Always do your research on the lender; typical loan terms, interest rates, perks, etc., prior to having them pull your credit directly.

Try to keep credit card debt lower than 20% of your available balance. Keeping around 20% of debt on your available credit card debt is important. If you have a $10,000 limit on your credit cards you’ll want to keep no more than $2,000 in debt on them. Having maxed out or near maxed out credit cards will greatly affect your score and in a bad way. One trick that might help is asking creditors to raise your limit. This will help lower your percentage of debt (not the amount), plus the higher the limit the better it looks on your credit bureau.

Be sure to use lenders who report to credit bureaus. Not all monthly payments will report to your credit. Paying things such as rent, cell service, gym memberships, electric or water will not show up on your credit. Things like mortgages, car payments, student loans, or credit cards should. Creditors are not obligated to report to credit bureaus so before you open a new line of credit be sure to look into if it will help build your credit.

Talk to your realtor. Czoer Team works day in and day out with mortgage lenders, they know their stuff. Before picking a lender, ask! They can refer you to a reputable lender and will make sure you are taken care of.                            John (812)-457-1432 or Bev (812)-431-2727