Monday, September 19, 2011

Credit Stink? 10 Tips To Repair Your Credit For Free

Lisa Kyle Young, Getty Images
If your credit is bad, there are things you can to to improve it for free. Nobody's perfect, but when you go to get a mortgage loan, you feel all eyes upon your one shining credit score. Suddenly, your whole life seems to be distilled down to one number. I have gotten several questions about how people can raise their score before they apply for a mortgage. Here are 10 easy things you can do to raise your credit score.

1.     Pay your bills on time -- One late payment in a 30 days period can drop your score by as much as 90 points. Keep all accounts current and consider using auto bill pay to make sure they are paid on schedule.

2.     Use less than 30% of your credit limit -- Using credit wisely and staying within limits makes companies feel that you are creditworthy. It also leaves room for you to make another payment like a mortgage.

3.     Raise your credit limits -- A higher credit limit may mean a lower percentage of credit utilization. Calling credit card companies quarterly and asking for a limit increase can make your percentages look better overall.

4.     Make peace with bill collectors --Ask collectors to report accounts as "paid as agreed" or "paid in full". Some collectors will even agree to take old accounts off your report, but do not be tempted to pay expired collections. They have already been reported on your credit and paying them may actually lower your score

5.     Pay down balances -- Use your credit, but pay down the amount you owe. If you are looking to buy a house or other large purchase, pay down your balances to 10-15% of your credit limit if possible before you apply.

6.     Use an old credit account -- Old credit is your friend. Keep your oldest account and use it to boost your score. Part of your credit score is based on the length of your credit history, so in this case older is better.

7.     Remove all errors from your report -- Make sure all information like accounts, addresses and past names are correct. Leaving expired or incorrect information on your credit report makes it more likely that accounts that do not belong to you will be reported. Dispute any errors in your credit report to make is as accurate as possible.

8.     Limit credit inquiries -- Make all credit inquiries within a period of 45 days or less and do not open new accounts during that period. Limiting credit checks will help raise your score.

9.     Keep 4-6 accounts in good standing -- Banks and lenders want to see that you have a track record of doing solid business with more than one company. Keeping 4-6 revolving accounts in good standing demonstrates your financial stability. Utilities bills often do not count, but car loans, regular installment payments like student loans and credit cards do.

10.    Ask for a "goodwill adjustment" -- If you do have a late payment on an account that is now paid on time, ask the company to remove the old late as a goodwill gesture. Send them a goodwill adjustment letter. Many banks and credit card companies will remove one per 2 years or so if your account is in good standing.

Doing those 10 things can raise your score in just a 30-60 day period and make it easier for you to get the loan you want at the rate you want. Better credit is the key to stable homeownership.

1 comment:

  1. Thank you for a nice article. However, collections accounts are just a number off of a spread sheet. You still owe the debt. The companies will continue to send them to different collection agencies. Offer to pay .25 on a dollar and settle the accounts.