Bad credit CAN get better, and good credit can become GREAT credit!
Part 2 of this series can be found here: 9 Easy Steps To Getting The Best Rate (and Lowest Payment) On Your Next Mortgage (Steps 4-6)
Part 3 is here: 9 Easy Steps To Getting The Best Rate (and Lowest Payment) On Your Next Mortgage (Steps 7-9)
It's never made a lot of sense to me...
Most people will spend more time cleaning up their car to get it sold than they will spiffing up their credit report to get it 'just so'. They just don't realize the importance of the 'sale' they need to make to the bank, and how much influence they can have on the whole process.
This series is going to give the average borrower the tools they need to improve their scores rapidly so that they get the very best mortgage rates available.
Some of the steps I'll be covering will seem rather basic to some of you, and that's OK. To others it will be brand new. And we'll be building on it as we go. Before I get started, I should note for the record that I will frequently be referring to threads at CreditBoards.com. I was Founding Moderator at CreditBoards, and it is now the largest credit related forum on the web, with over 45,000 members. I no longer have any affiliation with CB, but I do still post there occasionally and I am more than a little proud of what it has become...
So, as a wise man once said, (I think it was me...), let's start by starting.
Step 1
Background: New legislation makes it mandatory for the credit bureaus to provide you with one free credit report per year. Pulling your own report avoids having an Inquiry placed on your file, which, when they accumulate, can damage your scores.
Your Assignment: Get your credit report at http://www.annualcreditreport.com/ (completely free) or http://www.myfico.com/(charges a fee, but includes the same FICO scores that your mortgage lender will use). Any other "free credit scores" are NOT true Fair, Isaac, & Co. (FICO) scores, which are the only scores that matter.
Here's a thread at CreditBoards.comthat gives the latest discount code at MyFico.com (usually saves 20%). Scroll to the last page to get the latest code.
Step 2
Background: Getting your credit history started is obviously critical for those without one. A good place to start is with a secured credit card. But not just any card. It is CRITICAL to make sure that the secured card you get is one that reports your account to all three credit bureaus (TransUnion, Experian, and Equifax).
Your Assignment: Open a secured credit card if you do not have credit. Ask your bank or credit union if their secured card reports to all three bureaus. Here's another thread at CreditBoards.comthat lists a number of secured cards that report to all three credit bureaus as an unsecured tradeline.
- Quantity (number of tradelines) is important as well as quality (credit limits). If you are starting from scratch, it would be better to have three $300 limit secured cards than one $900 limit card.
Step 3
Background:According to the Public Interest Research Group (PIRG), 79% of credit reports (http://tinyurl.com/hnl4t ) have errors, and 25% of these are serious enough to cause a loan denial. No statistics are given for how many of those other 54% were serious enough to RAISE THE RATE paid by a borrower, even if it did not cause a denial. So, odds are, you will find errors in your credit report if you look closely.
Your Assignment:Look closely. For example; Installment loan coded as revolving credit, balances that you know have been paid off/paid down, duplicate accounts, accounts that are not yours (more common that you think!), late payments, collections, chargeoffs, other derogatory information that may be incorrect. Even dates of last activity of old accounts. Also look for old, dormant credit card accounts that may be re-activated, thus improving your credit ratios, as well as increasing the average age of your open accounts.
Until Next Time!
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