Millions of Americans struggled through the recent recession, falling behind on mortgage and car payments, running up debt and damaging credit ratings. If you can relate, read on, because we’d like to help you repair your credit score so you more easily qualify for future loans and save money on those loans.
Here are five steps to begin restoring your credit.
- Understand what a credit score means.
Credit scores predict the risk of someone not repaying an agreed-upon debt. People who have low debt amounts but are continually late in paying or have debt collection accounts likely have a worse credit score than someone with higher debt, but a clean payment record. Which describes you?
- You have the right to free credit reports so take a look.
Under federal law, the three consumer credit reporting companies (Equifax, Experian and TransUnion) must provide you with a free credit report every 12 months if requested.
- Check for mistakes or identify fraud.
Once you get your current credit report, carefully review every item. Look for charges you don’t recognize; credit denial for no reason; inaccuracies in the amount you owe on your home, car or consumer credit cards; errors related to late or missed loan payments.Information on your credit report that doesn’t look familiar, such as addresses or account information, could mean identity theft.
- Dispute mistakes.
- Start paying off debt.
According to Experion, if one of your debt items carries a higher finance charge, a good strategy is to pay the most toward that account’s balance. This is due to the fact that a lot of your money is paying for fees but not lowering the debt principal. When you pay off such a debt, you can then apply the money you were paying on interest to your other debt.
Also, your debt to income ratio is one of the key numbers that lenders use to determine if you can qualify for a new mortgage or an existing loan refinance. Ideally, aim for a debt to income ratio of about 30%.
Let Complete Real Estate Solutions help answer your credit and real estate questions.