Smart Borrower Center
Tools to help you borrow better
If you’re assuming your credit score will qualify you for a good home loan, here’s something you should know: they’ve recently moved the goal line. Lenders are getting pickier about who they’ll loan money to, and people with poor credit histories will find they have a lot of yardage to make up before they can get a mortgage. Even those with average scores may not be eligible for the lowest interest rates, so it’s more important than ever to have a credit game plan. Here are seven steps to get you to a good credit score.
1. Check your credit report annually.
Be on the offensive when it comes to your credit score: check it once a year for free at www.annualcreditreport.com and correct any mistakes you find.
2. Pay your bills.
Consistently paying your bills on time, over the long haul, isn’t the flashiest play in the playbook. But it’s crucial. Most major banks now offer free online bill pay service, through which you can schedule monthly payments.
3. Bring down your debt ratio, strategy one.
Your debt ratio is the amount of debt you have in relation to your credit limit, and it’s one area that’s more like golf than football, because you want the lowest score possible. Pay down the debts you have so that you’re using 30 percent or less of your available credit line.
4. Bring down your debt ratio, strategy two.
A kind of back-door defense: Get your credit limits increased so that your debt is less than 30 percent of your available credit.
5. But don’t open new accounts you don’t need.
Every time to you apply for a new credit card, it can mean a five-point penalty.
6. And don’t close old, unused accounts.
Closing old accounts will only shorten your credit history. Lenders want to see a nice, long track record.
7. Hire a coach.
Enlisting the help of a credit counselor won’t gain you any points, but it could save you from score-busting disasters, such as bankruptcy. If you’re having trouble managing your debt and you’re not sure how to fix your problem, contact a reputable credit counselor. The U.S. Trustee’s office (part of the Department of Justice) has recently begun compiling a list of approved credit counseling firms, http://www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm, and the Federal Trade Commission offers advice for selecting a credit counselor, http://www.ftc.gov/bcp/conline/pubs/credit/fiscal.shtm.
Published on December 24, 2007