Credit Scoring and Mortgages

Credit scoring is a system devised to keep track of your borrowing history.  If you have good credit, this point based system can help you get lower interest rates, borrow more, and get better prices on insurance.  It's tracked by companies called credit bureaus, who determine your credit standing.  If you have a poor score, you can get some points back, which will improve your odds of getting more money for a loan, a lower interest rate on existing loans and lower payments per month, receive new credit cards, or get more credit.  A poor score that you don't correct can result in denial of credit.

Your credit score is determined by a number of factors, including your debt history, credit history, state of your accounts, and others.  Each of these factors can cause you to accrue or lose points.  Keeping a good score is beneficial and will allow you to borrow more.  To do this, be sure that your payments are always on time.  A percentage of your score is determined by your timeliness in paying every month. 

Another factor that can help determine the quality of your credit is being conscious of how you use it.  If you use your credit frequently, but also pay it off regularly, you'll have a better score.  If you don't use your credit often, your score will be lower, even if you pay promptly.

Should you already know your credit score, and know you're in need of an improvement, you can go about making it better in several different ways.  Double check your score with one of the three major credit reporting agencies first. These are Equifax, Tran-Union, and Experian.  Once a year, all US residents are able to get a report for free.  However, you'll have to pay to get your score.  If you need to see your report more often, you can pay a small fee to receive it. 

Your report will be broken down according to your payment history, your outstanding debt, any inquiries as to your credit, and kinds of credit you use.  You won't lose points from checking your credit report once, but if inquiries are made frequently, you could see your score lowered.

Once you've got your report, make sure that everything on it is accurate within thirty days of getting the report.  You'll have to investigate any part of the report that doesn't seem legitimate.  Credit agencies aren't perfect, just like every other company.  If you have an illegitimate mark on your credit report, resulting from a mistake or from identity theft, it can be removed, automatically raising your credit score.  You also have the right to dispute negative comments on your credit report.  Once you've disputed something, be sure to check on it regularly to make sure it's actually been removed from your record.

Next, look at any accounts or collections that are past due.  Paying these off will begin to raise your credit score.  Be sure that you pay off the debts that are most likely to improve your score first.  Some credit agencies and collectors won't fix your report until the count is settled.  The less outstanding debt you carry, the better your credit report will look.  The best time to pay the debt is immediately before it's reported to the credit agency.  This means that less of it will show up on your report.

Another part of paying off debt is eliminating excess credit cards.  Four credit cards or fewer will help you keep a good credit score, especially if you already have debt.  More than that can be dangerous.  Be sure not to cancel more than a fifty percent ratio of your debt, or you may lower your score.  Also, don't cancel cards with less than a one year history.  Remember, if you have several different cards, don't switch between them trying to get the best rate on payments.  This will turn up in your credit history and cost you a few points.

The best and easiest way to get good credit is by paying your bills on time.  This makes the biggest impact on your credit score.  Even when you're not able to pay off the whole balance of a debt, making some kind of payment early will demonstrate your responsibility.  If you don't have any credit history, try taking out purchases on a credit card and then paying the off immediately.  This will help you establish a credit history, which will come in handy later when you need to pay off a mortgage or take out a loan.  Establishing a credit history shows that you are able to be responsible for your own credit and are able to pay your bills on time.

Remember to take the time to look into your credit score.  Improving your credit will help you establish the ability to get better rates, interest and terms on loans, as well as borrow a larger amount.  Be sure you look for the right things on your credit report and take steps to repair any problems you find.  This is the best way to get the most out of your credit report.