December 26, 2007
Beginning with today’s post, I’ll be writing a series of New Year’s resolution posts – since we’re all sitting down right now to make those resolutions, let’s add some that will help us buy or sell homes better – or just save money everyday.
Today’s New Year’s resolution will help you if you’re thinking of buying a home, refinancing your current mortgage – or asking for any kind of loan. So let’s all resolve to clean up our credit or – if it’s already spick-and-span, to keep it that way.
Whether you have poor credit or excellent credit – or anywhere in between – you should check your credit reports at least once a year. Now, you are entitled to a free credit report each year. Order one at www.annualcreditreport.com. Unfortunately, the free credit report doesn’t include your credit scores, which lenders look at first to determine how much they might lend you, and at what rate. To check your credit scores, you’ll have to go to the credit bureaus themselves. They are:
Equifax: www.equifax.com
Experian: www.experian.com
TransUnion: www.transunion.com
If you don’t have great credit and you’ll be taking steps next year to fix it, you may want to check you credit more than once next year. You can purchase credit reports – and scores – from each of the three credit bureaus.
How to keep good credit clean
1. Be judicious in your borrowing – a general rule-of-thumb is to keep your debt balances below about 30% of your total available credit (for example, if you have $10,000 available credit on a credit card, keep your balance below $3,000).
2. Keep paying your bills on time. You’ve done great so far. But in 2008, remember to pay all of your bills on time. Even one late payment can hurt your credit score.
3. Keep an eye on your credit. To watch out for any mistakes or identity theft, check your report at least once in 2008.
How to clean up poor credit
1. Pay your bills on time, every time.
2. If you’ve defaulted on any debts and they’re in collections, pay them off. While paying a debt that has been sent to collections won’t erase the collections mark, it will replace the “unpaid” mark with a “paid” mark, which will improve your credit.
3. If you have debts that you’re currently struggling to pay, you will need to get back on track before your credit score will improve. There are a number of good non-profit debt counselors who can help you – free of charge – figure out how to get back on top of your debt obligations.
4. Once you’ve gotten back on track with the debts you already have, think about opening a secured credit card, but limit your purchases and pay off your balance each month. This will improve your credit score quickly and help you qualify for an unsecured credit card, which will help improve your credit score even more (as long as you pay off your balance each month).
Today, good credit is the key to the best loans and the lowest interest rates. Whether you’re planning to buy a home or refinance in 2008, or not, make a resolution to keep your credit clean, or clean up your credit, in the coming year.
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