Improving Your Credit Rating
As listed in my previous posting "The High Cost of Poor Credit", a low FICO credit score can have far reaching negative effects. It can affect where you live, what car you drive, where you work and even your insurance premiums. As a real estate investor, having knowledge of how to improve the credit rating of prospective buyers is a key to my success in the current market.
Again, the most effective way to improve your credit rating is to have active credit accounts, use them wisely and always pay on time. Having both installment accounts, such as home or car loans, and revolving accounts, such as credit cards, is also helpful in raising your credit score. Keeping your total debt level and credit utilization ratios in check is also very important.
Your credit utilization ratio is the percentage of available credit you have that is currently being used. For instance, if you have one credit card with a $5000 credit limit and you have $3000 charged against that card your utilization ratio would be 60% ($3000/$5000). Ratios above 50% are considered to be negative. It is best to keep your credit ratio between 10% and 20% if you are trying to improve your credit rating. In this example it would be better to have 3 credit cards with a $5000 limit each and $1000 on each card. This will keep your utilization ratio at a much better level (20%) and help to improve your credit score.
An excellent source that we use for credit cards is www.IWantACreditCardNow.com which offers a wide variety of major credit cards with low interest rates and favorable terms. There are cards for all levels of credit. Even individuals with poor credit can get a secured credit card which when used wisely can quickly raise their credit scores to a better level. With better credit ratings there are cards that offer 0% interest for a year or more or other rewards for usage. We use these cards to help our first-time home buyers establish credit. There are even credit cards for college students, the buyers of the not too distant future. We also use them to help in the process of credit repair for our lease option and owner finance buyers.
Monitoring your credit report is also highly recommended. By federal law you can check your credit report at each of the 3 major credit agencies (Equifax, TransUnion and Experian) once a year for free. The best way to do this is at AnnualCreditReport.com or by phone at 877-322-8228. If you stagger your free requests with the 3 agencies, one per agency every 4 months, you will stay more current with your credit report year round. This will help you to catch mistakes or other problems more quickly if they occur. Contrary to popular belief, you can not hurt your credit rating when you ask to see a copy of it as long as you ask for it yourself. When you request a copy yourself it is considered a "soft" inquiry and does not impact your score at all.
Please look for future postings for more about improving your credit score and the scores of your prospective buyers. Topics will include the effects of lowering credit limits, closing credit accounts, credit card repayment strategies and many others.
Kevin O'Linn
OS Property Management
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