Ways To Raise Your Credit Score

Since everything to do with financing your home revolves around your credit score, it is a good idea to do whatever you can to have the best score possible by the time you purchase. 

There are several things that you can do to help your score:

1. If you do not have any open credit, you need to reestablish some.  The way to do this is to get three lines of positive credit working on your credit report.  Secured credit cards are one way to do this.  Regardless of if you do a secured credit card, or other type revolving account, make sure that the company reports to the credit bureaus and also, make sure that you keep your balance less than 30% of the available credit.  Then pay these accounts on time – NO EXCEPTIONS.  The reason to keep the balance less than 30% of the credit line is to get the maximum amount of points for the account.  If you go above 50% you actually start losing points.  The optimum is less than 30%.  Another quick way to add positive credit to your record is to have someone add you as an authorized user to their credit card account.  You would not get a card – or spend on the account in any way.  However, your social security number would be added to the account and at the next reporting cycle, their good credit history on that card is added to your report.  Keep in mind the information about balance to available credit (do not add a maxed out card to your account).  Also remember to add only a card with a positive history – you do not need to feel the affects of someone else’s 30 day lates!
2. If you have open credit – you need to make sure it is optimized.  Make sure that all accounts that report to credit bureaus are paid on time – NO EXCEPTIONS.  Second, work on getting the account balances below 30% (see item 1).  If your balances are really high, then first get all below 50% to stop the negative impact of the account.  Then, work towards the 30% for the highest impact.
3. Do not dispute or pay off items – unless we tell you to.  Often times, disputing a collection or paying off a collection will drop your score.  Once a collection has become a hit to your credit it is often better for your score in the short run (while you are trying to get a mortgage) to leave it alone.  After you get your home and you want to make good on past debts or dispute them – go for it.  Your score may drop a while, but the timing will be better for making the repair.

Your credit report and how to dispute it.

Your credit score is a record of your credit activities.  It lists all of your credit card accounts and loans, the balances as well as your payment history.  It also show if any action has been taken against you because of unpaid bills such as a lawsuit or bankruptcy filing.  Because businesses use this information to evaluate your applications for credit, insurance and employment, it’s important that the information in your report is complete and accurate, especially if you plan to make a big purchase like a home.

The Fair Credit Reporting Act (FCRA), enforced by the Federal Trade Commission (FTC), is designed to promote accuracy and ensure the privacy of information used in consumer reports.  Under the FCRA, both the credit reporting agency (CRA) and the organization that provided the information to the CRA (usually the credit card company) must correct any errors or incomplete information in your report.

If you do encounter a mistake on your credit report, several steps need to be taken to correct the matter:

1.  The first thing to do is get a copy of your credit report from each of the three major CRAs:  Equifax, Transunion, and Experian. 

Click here to order your free credit report from each of these agencies. AnnualCreditReport.com

2.  In a written letter, tell the CRA what information you believe to be inaccurate.  Include copies (not original) of documents that support your position.  Provide your complete name and address, identify each item in your report you dispute, and request deletion or correction.  Be sure to make copies of your dispute letter and enclosures.

3.  Send your letter by certified mail, return receipt requested, so you can document what the CRA received.

4.  The FCRA mandates that all CRAs reinvestigate the items in question – usually within 30 days – unless they consider your dispute frivolous.  They also must forward all relevant data you provide about the dispute to the credit card company.  After the credit card company receives notice of a dispute from the CRA, it must investigate, review all relevant information and report the results to the CRA.

5.  If the disputed information is found to be inaccurate, the credit card company must notify all nationwide CRAs so they can correct this information in your file.  Disputed information that cannot be verified must be deleted from your file.

6.  When the reinvestigation is complete, the CRA must give you the written results and a free copy of your report if the dispute results in a change.  If an item is changed or removed, the CRA cannot put the disputed information back in your file unless the credit card company verifies its accuracy and completeness, and the CRA gives you a written notice that includes the name, address, and phone number of the credit card company.

7.  In addition to the CRA, you should also write to the credit card company about the error.  Again, include copies of documents that support your dispute.  If you are correct – meaning the information you disputed is found inaccurate – the credit card company cannot use it again.  Further, at your request, the CRA must send notices of corrections to anyone who received your report in the past six months.

The Nine Most Commonly Asked Questions About Credit Reports

1. Why did you turn down my request for credit? – Credit reporting agencies do not recommend that your credit application be accepted or rejected.  Credit grantors make that decision based on your payment record and their own established criteria.
2. How can I correct a mistake? – Give the reporting agency specific details regarding the information you believe is incorrect.  They will check with the credit grantor, collection agency, or the public record source to see if any error has been reported.  Information that cannot be verified should be removed from your file.  If you and a credit grantor disagree on any source of information, you will need to resolve the dispute directly with the credit grantor who is the source of the information.
3. What if I still disagree with an item after it has been verified? – For those items in your credit file which you feel deserve further explanation, you may send a brief statement (not to exceed 100 words) to the credit reporting agencies.  The information will be place on your credit file and will be disclosed each time your credit file is accessed.
4. What is in my credit file that keeps me from obtaining credit? – Each credit grantor has established criteria for making credit decisions.  Your credit may appear to be perfect, but not having enough established credit or having too many outstanding balances are several examples of why your request for credit may be declined.  Sometimes the decision is not even based directly on the credit file; for instance, you may not have lived at your residence or in your present job long enough.  If you have questions about why you were not approved for credit, contact the credit grantor who turned you down for credit ans ask for an explanation.
5. Why is employment outdated? – Some employers do not regularly update this information.  What is listed as your current employment is actually the last employment reported to the credit reporting agency by credit grantors.  This information is not typically used by credit grantors, or employers in making their decision, but for demographic purposes.
6. Why isn’t my income shown? – The information kept to help credit grantors process credit applications include your personal identification, the timeliness in which you have paid your bills ( as reported by your creditors), whether you have filed for bankruptcy, and if you have or had a tax lien or a judgment recorded against you.  Credit grantors usually have their own source’s for verifying income.
7. If I do have credit problems, is there some place where I can get advice and assistance? – Maybe.  The Consumer Credit Counseling Service (CCCS) is a non-profit organization that offers free or low-cost financial counseling to help people solve their financial difficulties.  CCCS can help you analyze your situation and work with you to develop solutions.  There are more than 600 CCCS offices throughout the country.  Check your phone directory to get the telephone number for the office nearest you.
8. Should I use one of those companies that promises to help "fix" my credit? – No!  These companies cannot have accurate information removed from your credit file.  There is nothing they can do for you that you cannot do yourself.
9. Where can I get more information? – Free information is available on subjects such as "Building a Better Credit Report"; "Credit and Divorce"; "Credit Billing Errors"; "Fair Credit Billing"; "Fair Credit Reporting"; "Fair Debt Collection"; "Fix Your Own Credit Problems"; and "Women and Credit Histories" to name a few.  You can contact the Federal Trade Commission, Public Reference Section, 6th and Pennsylvania Ave. N.W., Room 130 Washington, DC 20580.  (Your local library also has information in the consumer reference area of the library.  Ask your librarian for assistance.)

Adding Accounts To Your File

Your credit may not reflect all your credit accounts.  Although most national department store and all-purpose bank credit card accounts will be included in your life, not all creditors supply information to credit agencies.  Those not reporting to credit reporting agencies may include some travel, entertainment, and gasoline companies, local retailers, and credit unions.  If you have been told that you were denied credit because of an "insufficient credit title" or "no credit file", and you have account with creditors that do not appear in your file, you can ask the credit reporting agency to add this information to future reports.  Although they are not required to do so, many credit agencies will add other verifiable accounts for a fee.

Challenging Credit Information

Challenging information on your credit report is a lengthy process.  Whether you do it yourself or have a credit repair company help, you need to start the process immediately.  It takes time to work often times 6 months to really make a positive impact.

If you already qualify for financing and plan to purchase in the next four months, do not challenge information on your report without the specific request from your lender.  It can drop your score and if you were borderlined for a loan program, put you out of qualification altogether. 

If you are considering having a credit repair company do the work, many of our clients have had good results with Lexington Law…and their prices are very reasonable – with no long term commitments.

To do it yourself, visit all three credit bureau’s individual website and pull your credit report (links below).   Make sure you go to each individual site, it won’t work if you pull all three bureaus from one site.  Look over each report side by side and highlight issues on your report.  Then go back to each individual credit bureau website and follow their instructions on how to dispute. 

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  • TransUnion
  • Equifax
  • Experian

What is a credit score?

Before deciding on what terms they will offer you on a loan (which they base on their "risk"), lenders want to know two things about you:  your ability to pay back the loan, and your willingness to pay back the loan.  For the first, they look at your income-to-debt obligation ration.  For your willingness to pay back the loan, they consult your credit score.

The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. (and they’re named after the inventor!).  Your FICO score is between 350 (high risk) and 850 (low risk).

Credit scores only consider the information contained in your credit profile.  They do not consider your income, savings, down payment amount, or demographic factors like gender, race, nationality or marital status.  In fact, the fact they don’t consider demographic factors is why they were invented in the first place.  "Profiling" was as dirty a word when FICO scores were invented as it is now.  Credit scoring was developed as a way to consider only what was relevant to somebody’s willingness to repay a loan.

Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores.  Your score considers both positive and negative information in your credit report.  Late payments will lower your score, but establishing or reestablishing a good track record of making payments on tile will raise your score.

Different portions of your credit history are given different weights.  Thirty-five percent of your FICO score is based on your specific payment history.  Thirty percent is your current level of indebtedness.  Fifteen percent each is the time open credit has been in use (ten year old accounts are good, six month old ones aren’t as good) and types of credit available to you (installment loans such as student loans, car loans, etc. versus revolving and debit accounts like credit cards).  Finally, five percent is pursuit of new credit – credit scores requested.

Your credit report must contain at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score.  This ensures that there is enough information in your report to generate an accurate score.  If you do not meet the minimum criteria for getting a score, you may need to establish a credit history prior to applying for a mortgage.

What does bad credit cost?

Did you know that over 90 percent of American have derogatory credit and don’t know it?  We review credit every day.  Over the years, we’ve seen all types of credit, good and bad.  Many times, we can’t get the best loan rates we’d like to for our client because they have derogatory credit.  And we’ve seen the same credit cost them from one-half to three percent in higher interest rates on their mortgage loans.  That’s like giving thousands of your hard-earned dollars away.

Credit is very important.  In many positions, some employers even ask to run your credit to consider you for employment.  Good credit also offers you the opportunity to qualify for home loan programs with no down payment and no closing costs.

Additionally, it also allows you to obtain low interest rate credit cards, instead of settling for the 19 to 24 percent currently offered to people with questionable credit.

Any interest you don’t have to pay is like getting a pay raise.  And for some people, it’s costing them literally thousands of dollars every year in extra interest charges just by having derogatory credit.  Most of us make enough money to make a house payment, and too often, the payment we pay for rent is the same amount we pay for a mortgage payment.  People get stuck renting because their credit rating is too low to qualify to purchase a home of their own.  People that own houses have tax benefits, and get the appreciation of its value that renters don’t receive.  Actually, landlords would say, “Thanks again for paying my mortgage.”

Handling A Credit Dispute

We recently had a client who ran into a dispute with a creditor.  As their real estate consultants, they came to us for some advice and guidance.  We’ve changed the numbers, but what follows are some general guidelines that you may try before calling for legal advice when dealing with creditors.

• First get all your information surrounding the dispute together.  Then try a simple phone call.  If that works.  Congratulations!  You win!  Ask for confirmation in writing to keep in your files.
• If that doesn’t work, your next recourse is a letter.  (Most businesses need everything in writing.)
• Begin with a header that includes return address, account numbers and anything else that would identify you to them, such as your social security number or file title.  (For example:  re:  Smith to Jones or re:  123 E. Main Street)
• Next, write the business street address the inside (department) address and the date.  (Direct the letter to the address, department and/or person who most likely can help.)  Follow with your salutation.  (Dear Sir, etc.)
• Next, state the error or problem.  Start by telling exactly what you believe their records should show.  Include detailed facts and figures.  Often a list format works best.  For example: 

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  • Original amount owed $1000
  • Payments made 4/1/98 $500 and 6/2/98 $600 or:
  • Payment sent monthly:  $600

• If the situation has caused you any further damage, state exactly what damage it has caused.  (For example. Bill & Cheryl’s insurance wasn’t paid by the mortgage company, costing them increased insurance premiums and money for insurance losses not covered because mortgage company did not pay premium.)
• Next write what you want them to do about the situation i.e. reimburse for claim and increase of premium.  Give any information as to how to reach you and a time to respond, remembering to allow mail time and a few more days.
• Be sure to attach copies of all proof such as receipts or payment coupons, etc. on each point.  Keep a copy of the letter.  Go to the post office and mail returned receipt requested.
• Call back at the predetermined time.  Let the facts speak.  Be persistent and detailed.  Don’t let your frustration stop up.

Remember – document everything, be patient, and BE PERSISTANT.

How can you improve your credit score?

It’s virtually impossible to change your score in the time between when most people decide to buy a home or refinance their mortgage and when they apply.  So the short answer is, you really can’t “on the spot.”  But there are strategies you can live with to make sure when you apply for a loan your score is as high as possible.

Make sure that the information each of the three credit reporting bureaus has on you is consistent and up to date.  Order a copy of your credit report about once a year, and dispute any inaccuracies.

Note:  Theoretically, if series of credit reports is requested on your behalf during a limited amount of time, your score goes down until time passes without any inquiries.  Changes in the law though have made “consume-originating” credit report requests not count so much.  Also, series of requests in relation to getting a mortgage or car loan is not treated the same as a number of credit card requests in a limited time.  This is because credit bureaus, and lenders, realize that people request their own credit reports to keep up with what’s on them, and smart consumers shop around for the best mortgage and car loans.

Unsolicited credit card solicitations in the mail don’t count against your credit report, so don’t worry.

The two main components of your credit score are your payment history and the amounts you owe.  Bankruptcy filings and foreclosures, which can stay on your credit report for as many as 10 years, can significantly lower your score.  It’s never a good idea to take on more credit than you can handle.

Late payments work against you.  It’s extremely important to pay bills on time, even if it’s only the monthly payment.

Don’t “max out” your credit lines.  Since the size of the balance on your open accounts is a factor, lower balances are better.

It’s said that by carefully managing your credit, it’s possible to add as much as 50 points per year to your score.

Should You Use A Credit Repair Company?

This is a loaded question.  If you are planning to buy a home in the next 4 months and have a credit score that will get you financing, the general answer is no.  But it is more than not using a credit repair company – the answer really pertains to disputing anything on your credit – whether you do it or have a company do it.  Credit repair will normally drop your score initially and can take six or more months to make a positive impact. 

However, if you have credit that requires clean up to get a loan – you have two choices…do it yourself or hire an experienced, legitimate credit repair company. 

Many people will start out wanting to save money and try to do it themselves.  Some are very successful.  But keep in mind that doing it yourself is time consuming and you need to make a commitment to start the process ASAP and continue until you get the desired results.  Other people decide from the very beginning that it is too time consuming and too much trouble – they hire an expert to do it for them. 

Beware!  There are good credit repair companies that have many years experience and will see you through until the end.  But as in any industry, there are also some bad ones.  Over the years, I have seen many of my clients taken advantage of by the bad ones.  So we looked for a credit repair company that does a good job and has a low fee.  Many of our clients have found that Lexington Law Firm does fits this discription.  They are a law firm with many years experience in repairing credit.  There are no contracts or large up front fees. 

You pay a monthly fee of $39, they do all the work for you, and you decide how long you need their service.  You can terminate it at any time.

What Is A Secured Credit Card?

Anyone can get a secured credit card.  You do not have to have good credit to qualify.  This credit card is secured by depositing your own money in a savings account.  You are then able to charge on it up to the amount deposited.  After you charge on this card and make on time monthly payments it will report to all 3 credit bureaus and count as a positive line of credit to increase your scores. 

Open these accounts as quickly as possible – because it can take up to six months before it will have a positive affect on your credit score.  You will also want to keep the credit balance on this card low, but you need to keep a balance on it at all times.  YOU DO NOT WANT TO MAX THIS CARD OUT!

This card is not for your charging pleasure.  It is just a tool to reguild your credit history and add the maximum amount of positive credit points possible.  Once you buy your home, it is advisable to keep this card at a zero balance.

The best place to apply for a card is through your bank.  They are usually your best choice.  If they do not offer it, you can apply through most credit card companies.