Credit! Why You Need It and How To Use It Wisely

Many people do not realize that their credit score is one of the most valuable assets that they have.

One of the credit misconceptions that I run into most often is that not having a credit card or line of credit proves that you are a good risk for borrowing. Although this seems like a sensible conclusion, the opposite is in fact true. Lenders of every kind and especially mortgage lenders, want to see that you a) have credit and b) you know how to use it wisely. Without established credit used wisely, it is really impossible to get a mortgage.

Even if you are not in need of finances through lending at this time, you never know what is in the future. In order to obtain credit cards, loans and mortgages you need a strong credit score. If your credit score is low, there are some things that you can do to increase it quite quickly. Here are some of the best ways:

  1. Keep the number of times that your credit is pulled in a twelve month period to four or less. After four pulls in a year, your score is negatively affected.
  2. Make sure that your name is spelt consistently the same on all applications where credit is involved. If you have AKAs, indicating your name shows up differently at times then these AKAs negatively affect your score as well.
  3. Keep the balance on any credit cards within thirty percent of the limit and never go to beyond the credit limit. The credit card company may allow you to do it without penalty but it will negatively affect your credit score. If you are already at or near your limit and can access some money to pay the card down to within thirty percent that will boost your score quickly.
  4. Keep things current and stay that way.  Although credit agencies look at your history, they are more interested in what is going on in the present. Being late paying your bill can affect your score by at least 50 points. If you are consistently late each month, your score continues to erode. However, if you become current on an account that you were late on, your score will increase quickly.
  5. Stay informed as to what is happening to your credit. If any accounts have gone to a collection agency and you haven’t heard from them for a while, that doesn’t mean it has gone away. Collections can be transferred from one agency to another. It is important to know what is going on with your credit report. You can keep an account open with credit agencies such as Equifax for a nominal yearly fee and thus be updated whenever needed.
  6. If you have a card that you paid off and were in good standing but you no longer intend to use it, keep it open anyway. It offers an available balance which will boost your credit score. It also shows that you are a good risk because you managed the account well. Paying the account off is good if you are carrying a lot of other debt but keeping it active although not in use is considered good debt and helps your score.
  7. A secure credit card is one that is issued through a bank but you have deposited the funds in an account, so instead of the bank issuing you credit, the money is already in the account and is reported like a regular credit card. This is a good option for people who have no established credit and are trying to get some in place, or who have had bad credit and are trying to get things back up and running. This is a good way to boost your credit score.

A healthy credit profile is essential. Perhaps you are someone who does not typically use credit a lot but emergencies sometimes arise that require access to good credit, or perhaps you might happen on the house of your dreams and need a great score to finance it. Whatever your views about credit, a good credit score will be very useful at some point and should be valued and protected.

If you want more information about credit and your ability to get a mortgage, please contact me.

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