Maximizing Credit in Rochester MN
Increasing Your Credit Takes Time:
Increasing your credit score could take several months. Think about it. The major life events take some time. Having a baby takes nine months. Planning a wedding or getting engaged averages about a year, and retirement can take roughly 40 years.
Most big life events require some time. Buying a home is no different, so it pays to plan ahead. For many, one crucial area is to maximize their credit. Credit repair is something that I have unique familiarity with.
While in college, and during the great recession, I spent several years helping thousands of people with credit repair, and arbitrating debt settlements that saved people thousands of dollars. Now I’m not an accountant, but I’ve got enough experience to be dangerous, and because of this, I’ve had many clients go from not qualifying to home ownership in four months or less.
Buying a home is a major financial transaction, and by increasing your credit score, you will have the best opportunity to buy the home that you want with the best terms.
What Score Matters Most:
What score matters the most? By design, credit scores are ways to evaluate your financial reputation and there are hundreds of differences in how they are calculated. Experian, TransUnion and Equifax are the three main credit bureaus and about a decade ago, they came together to create their own version called VantageScore.
However, each have different information about you so even though they use the same model to gauge your score, there could be differences between them. There is also the FICO score which is the oldest and most widely used scoring model and commonly used by lenders. It may be the one you hear about the most and is usually offered to you monthly by your credit card provider.
To know which model is best for you, it is best to ask your lender and keep your credit history clear and strong so that no matter which model they use, you’ll come out with a high score.
Seven Tips to Maximize Your Credit:
One, a probably one of the most important. Always pay your bills on time. Two, keep your credit card balances low.
Three, try to pay off debt faster than the allotted time given. If they give you five years to pay off your car, try to pay it off sooner.
Four, do not close your current account or open up a new one. Five, order your free online credit report from annualcreditreport.com and dispute any errors.
Six, study and know your FICO score. Finally, try to keep your debt-to-credit ratio less than 30%.
All of these combined are sure to help you improve your credit score.
Five Biggest Credit Mistakes:
Number one, maxed out cards could cause your credit score to go down anywhere from 10 to 45 points depending on your current score.
You can see that the higher your credit score for each of these credit mistakes, the more adversely it affects your credit when you make one of them. For example, if your score is 680 and you have a maxed out card, it could impact your score between 10 and 30 points. But, if your credit score is 780, then a maxed out card could impact you between 25 and 45 points.
A 30 day late payment could negatively affect your score anywhere between 60 and a 110 points. So pay your bills on time.
A debt settlement could drop your score from 45 to a 125 points. A foreclosure, between 85 and a 160 points. And lastly, a bankruptcy, anywhere from a 130 to 240 points.
Three Credit Tips:
– 35% of your credit score is based off of your payment history so make sure to pay your bills on time.
– 30% of your credit score is based upon your capacity of credit. For example, if you have a credit limit of $5000 you only wanna use about 30% of the capacity of that credit card.
So here’s a tip: if you have one credit card with a $10,000 balance and another with a much lower balance, it’s not a bad idea to transfer some of the debt from one credit card to the other to keep the capacity used as close to 30% as possible.
Also, be mindful that 10% of your credit score is based upon inquiries and past applications.
So overall 75% of your total credit score is based upon your payment history capacity of credit used and inquiries and past applications.
So pay your bills on time, be sure not to max out your cards, try to keep a 30% balance or lower if you can and don’t get too many inquiries. All this together will help dramatically maximize your credit score.
Handling a Charge-off
A charge-off is when a creditor writes off a balance, but you haven’t paid. They write it off of their books as a charge-off, but this doesn’t mean you no longer owe it.
From there it is often sold to a third-party debt collection agency. And the question becomes, do you settle the account or do you make a payment plan? First, it’s best to consider the age of the account.
Lenders just want to see that you have the responsibility of dealing with them. Whether you settle for pennies or pay in full could have different impacts.
If you do a settlement, it’s best to obtain a letter stating the terms prior to making the settlement.
Regardless of which option you choose, initially your credit score may go down, until you either settle the account or complete the payments.
In any case, if you are looking to purchase a home, it’s a good idea to consult with the lender or an accountant prior to making any decisions. Sometimes things that you think may make sense, could actually have a negative effect.
This is Alex Mayer with Counselor Realty, Buy and Sell Strategically.