Boost Your Credit

Boost Your Credit for the New Year?

By Patrick McCarran

Real Estate Broker

Didn’t get what you want for Christmas? How about a new home?  If this is on your list you may consider adding boosting credit score to your New Year’s resolutions.  Although no one except the credit reporting agencies know exactly how the algorithm works these general tips are commonly acknowledged to help increase your credit score

1. Always pay on time

This sounds like a no brainer but it isn’t. No lender likes to lend money to an individual who has a track record of missing their payments. This indicates a lack of discipline and poor financial management, and it translates to a lower score. On-time payments improve your credit score tremendously. It carries almost a 40 percent weight on your score. If you find it hard to keep track or forget to mail the payments try and e-pay option at your bank. Set up the minimum payment to go out preferably just before the due date and choose the recurring option so it pays every month. Just remember to check your statements in case the minimum payment changes. Because you are setting this up at your bank you can change it or cancel anytime with the click of a mouse.

2. Keep your credit owed within limits

Keep your credit card balances within 40%  of the allowed limit. If you have $5,000 as your limit, then keep your balance amount to $2,000. This applies even if you pay it off each month. The total balance at any time must stay under 40% to show that you are not pushing your limits, it is like the old saying they only give you money if you don’t need it. Also it is good practice not to have your total unsecured credit balance over 50 percent of your annual salary.

3. Use two credit cards if you are a habitual credit card user

This is good and bad advice at the same time. FICO does not consider spending money on two credit cards as one. But if you have two credit cards, you can keep your usage percentage in control.

For example, if you have a credit card with a limit of $2,000, and you charge $1,500 on it, you’ve used 75 percent of your credit limit.

Now if you split your amount into two, and spend $750 each, then the percentage of usage will be around 37 percent. So it helps you in the eyes of FICO. Now, don’t go on a credit card shopping spree.

4. Maintain a good mix of good and bad loans — AKA, a healthy credit mix

Home loans and business loans are considered good loans. Personal loans and private label credit cards are considered bad loans. This is why investing in a home loan, if you are a spendthrift is a better decision. You will have a good credit mix and build an asset.

5. Pay high-interest loans and small loans first

It is a prudent decision to pay your home loans over longer periods. Pay off your personal loans, credit cards and private loans first, as they tend to have a higher interest (typically 15 percent to 36 percent) with no asset creation. Home loans, on the other hand, are just 4 percent to 5 percent, but they build an asset. This is one of the underutilized logical tips to improve credit score. Pick a loan and set a goal and then focus on paying that one off (but don’t buy something to celebrate).

6. Close your unwanted savings accounts

Many people tend to abandon their savings accounts without closing them. If you have less than your Minimum Average Balance (MAB), it will start to affect your credit score. Also, when you finish paying a loan off, it’s imperative to get the loan closure certificate.

7. Check your credit reports regularly

You can obtain them from the official FICO site for free. Just go online and check your credit score at least once in a year, so that you can catch any mistakes and get it corrected. There have been cases when banks report you to FICO by mistake. Keep in mind that free reports are a consumer product and the credit score will vary depending on the type of credit you are applying for.

8. Monitor your co-signed joint accounts properly

In instances of co-signing a loan or maintaining a joint credit account, even if they are family. You need to monitor the statements closely to make sure everything is in order. There is no use complaining if you chose the wrong joint holder who was careless and you don’t catch it.

9. Negotiate if you cannot pay on time

This is also one of best tips to improve credit score. People often know that they would not be able to pay their bills in advance. Regardless, they do not take any action.

If you know you will not be able to pay on time, negotiate with your bank. Banks may be willing to extend your loan period and reduce the EMI and the FICO will see you are proactive.

So these are some of the tips to keep your credit score in check and get a better home loan with less stress. Feel free to contact me with any other questions or for more information.

Patrick McCarran is a local Realtor and Broker DRE# 01325072. He can be contact by phone or text at (925) 899-5536, pmccarran@yahoo.com or www. CallPatrick.com. An independently owned and operated office.  In association with Realty One Group Elite DRE# 0193160. Equal Housing Opportunity.