Ways to Improve Your Credit

Ways to Improve Your Credit

Pay loans first. Pay them before you spend money for things like going out for dinner or to the movies. Missed payments hurt your credit rating.  

Remind yourself that credit cards are loans. Before you pull out your credit card, ask yourself, “Would I really take out a loan to buy this?”  

Charge less than the maximum amount available on your credit card. Even if you make the payments on time, creditors may think that you are in too much debt. 

Only apply for the credit you need. Every time you apply for credit, it appears on your credit report. If you apply often, creditors may be concerned that you are using too much credit. Even if you do not open the charge account your application may raise a flag that you may be having cash-flow problems. Avoid applying for credit cards just for fun, or to get a “free” gift or a discount on a purchase.

Choose a credit card with a low interest rate and no (or very low) annual fees. Credit cards issued by department stores or other stores usually charge higher interest rates than bank credit cards. You can use the Internet to shop for a card with low fees and low interest rates. Compare the fees and rates of any offers you receive in the mail. Do not pay an upfront fee to get a lower rate on a credit card. An upfront fee is different from an annual fee and is often a scam. 

Try to pay more than the minimum due each month. When you only pay the minimum, you end up paying a lot of money in interest charges. For example, assume you use a credit card with an 18 percent interest rate to buy a sofa for $1,000. You only make the minimum payment of 2 percent each month (about $20). At that rate, it will take you about 90 months (or 7 1/2 years!) to pay off the couch, and it will end up costing you about $1,800 when you include interest charges.  

Use your credit card to establish good credit. Although you can get into debt trouble if you overuse credit cards, you can also use credit cards wisely to show that you can manage credit well. Just be sure to pay the credit cards off every month or keep the balances very low. 

Keep track of bills and past-due notices. Don’t think that a debt has disappeared just because you’ve stopped receiving notices.  However, the bill will still show up on your
credit report. Unpaid student loans will also appear on your credit report and may prevent you from getting a loan. Check your credit report to see if you have any of these debts. Then take steps to start paying them before you apply for a new loan.

Close all dormant credit card accounts. Contact card issuers and ask for instructions on closing the accounts.  Instruct the card issuer in writing to enter into your credit report, "Closed at request of cardholder." That way, there won't be any reason to suspect that a credit problem caused the account to be closed.

No major purchases before buying a home.  

Don’t move money around between accounts, stocks & retirement funds. If you have been moving money between accounts during that time, there may be large deposits and withdrawals in some of them. Moving your money around, even if you are consolidating your funds to make it "easier," could make it more difficult for the lender to properly document.  

Don’t change jobs.  For most people, changing employers will not really affect your ability to qualify for a mortgage loan, especially if you are going to be earning more money. For some homebuyers, however, the effects of changing jobs can be disastrous to your loan application.