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Community Corner

Tips For Scoring Better Credit

How to polish up and improve your credit score to take advantage of the real estate buyers' market.

With the economy and job market just coming out of a "down" period, a large percentage of the population is concerned and wondering how less-than-perfect credit scores might affect their ability to take advantage of the current buyers' market in purchasing a home.

In order to know what you need to do to position yourself favorably, you need to understand the different components making up the big picture that is your credit score. Here are the key components, with the percentages that each component contributes to your total credit scoring and a tip on how to improve each one:

  • Payment history contributes 35% to your credit score: Make sure to obtain and analyze your credit report yearly. You can get a free copy of your report once a year. Look to make sure that the information is accurate.  If you find errors, dispute them until they are corrected or removed from your credit history. If you’ve had a significant hardship such as bankruptcy, make sure that accounts that were involved are showing as paid accounts.
  • Amount of debt that you owe contributes 30% to your credit score: Control the amounts that you charge to your credit cards to less than 30% of the total amount of credit available for each card. Paying down the card or cards that are the closest to their limits is a great strategy for increasing your score. Use the free services and tools that some credit card companies offer, like text or e-mail alerts, to track and control your card balances. 
  • Length of time in credit history contributes 15% to your credit score: If you have an old credit account that you’ve paid off and don’t use, consider using it to pay for a monthly "necessity expense" to keep an aged account active. Active accounts are considered above inactive accounts for scoring purposes, so if you need to use a card, use the ones that you’ve had the longest and then, if possible, pay the balance off at the end of each month.
  • Recent credit history contributes 10% to your credit score: Refrain from opening new accounts or from consolidating debt from several cards to one card. Generally speaking, lower balances on a number of cards are better than a much larger balance on just one. And, of course, it goes without saying, paying your bill on time is critical. Just one late payment can have a significant negative effect on your score. If you’ve had major issues with your finances, such as a bankruptcy, opening a new credit account and managing it well and paying on time will help you re-establish a good credit history.
  • Number of types of credit being used contributes 10% to your credit score: Again, stating the obvious, don’t open new credit accounts for anything but necessities. Before using credit for purchases or opening new credit, always do a self check to ask yourself, “Is this a want or a need?” Use the answer to that question to guide you into making better financial choices and decisions. 

Be persistant and consistant! The accumulation of making better decisions and establishing better financial habits will ultimately lead to higher credit scores.  Higher credit scores will lead to significant savings, as a result of qualifying for better interest rates, when it comes to obtaining a mortgage for your new home.

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