Fix Your Credit
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When thoughts of home-ownership become meaningful to you, everybody will tell you that you need to get your pre-approved mortgage financing set up before you go out shopping for your dream house.
But before you do that, if you think you might have some credit misdeeds lurking in your past, spend the time, make the effort and navigate the frustration that it may take to get your credit overhauled and polished up.
Getting your credit score/history/report sorted out before you get pre-approved for mortgage financing will help determine the kind of mortgage you qualify for and the cost or interest rate.
There is no shortage of companies offering to help fix your credit and increase your credit score; some are legitimate with real results, some maybe not so much. But there are some absolutely-for-real-do-it-yourself credit repair strategies that you can do yourself today, right now, that will have an immediate positive impact on your credit profile.
This is not about credit repair, this is about credit correct, and there are simple and effective fixes you can do yourself that will make a big difference in your credit score.
As a consumer, you are entitled to a free credit report every twelve (12) months. All you have to do is go to Annual Credit Report .com, follow the directions and presto, you have a free copy of your credit report from all three credit bureaus; Trans Union, Equifax and Experian. You may be given the opportunity to pay a fee to get your credit scores and you can of course choose to do so, but you don’t have to.
Once you have your credit report in hand, study it and get comfortable with how it is structured and what the keys and abbreviations mean. This will make it easier to read all of the individual accounts and determine the status and health of each one.
In the body of your credit report, down where the accounts are listed, there are letters all the way to the left for each account under the ECOA heading. These letters are key codes for how a particular account is classified or held and by whom.
Knowing how to read your credit report and what you should look for, can help you determine if there are any accounts where you are an Authorized User or a Joint account holder, and whether these accounts are helping or hurting your credit score.
Look for the letters J and A, as these denote that you are a Joint account holder or an Authorized User on the account listed.
If you are a Joint account holder or if you are an Authorized User on someone else’s credit account, it can help or hurt your credit score. In either case, these accounts belong to someone else and being a Joint holder or an Authorized User transfers access to the performance history for that account to you.
For example; if you are an Authorized User or a Joint account holder on a seasoned account that is not over-utilized and has a good payment history, you may just want to leave that account alone. Old age is a good thing when the subject is credit; established accounts opened long ago will have a positive impact on your credit score.
But if you have established credit (and are no longer actively using these accounts -usually credit cards), you may want to have the primary account holder remove your Authorized User or Joint status. This is an especially good idea if the account has late payments or is at or close to its credit limit. Here, the primary holder of the account may be putting a dent in your credit score simply because you are an Authorized User or Joint holder. Call it guilt by association.
This is a fairly easy fix that can have a big impact on your credit score. Call up mom or dad, your ex-spouse, your old business partner or whoever it is, and ask them to make a call and have you removed from the account. Maybe tell them you are thinking about buying a house and you are trying to get your credit in order. Just in case, follow-up in a couple of days to make sure they took care of it.
On the other hand, if you do not have a lot of credit history or if you are new to the credit universe, being added to a credit account that belongs to someone else as an Authorized User may increase your credit score. This can be a great strategy for a newly minted workforce participant that has not had an opportunity to establish much of a credit history. Mom or dad or a trusting relative can add you as an Authorized User and all of the good that is attached to their credit account is automatically transferred to you. The age of when the account was opened, the timely payments and the prudent use of credit will all be added to your credit profile to help establish your newbie credit score.
Harnessing the power of being or becoming an Authorized User or a Joint account holder may be just the boost you need to launch your credit profile. On the other hand, it may also be a negative that is dragging down your credit score. Having the primary account holder surgically remove you can have an immediate impact to the good. This is a good place to start because this can be an easy fix that can deliver a lot of mileage.
If you have outstanding balances due on credit cards that are more than half of the approved credit line and you have the money to pay down those balances, do it. Credit cards with balances that are greater than 50% of the approved credit line are considered over-utilized and the credit scoring algorithms don’t like that. High balances on credit cards will hurt your credit score.
If your credit report is showing an old collection or charge-off account as unpaid and you can provide evidence that you had in fact paid it off, contact the credit reporting agencies, send them your proof and ask them to change the status to paid. A paid charge-off or collection account is better than an unpaid one.
You are in charge of your own credit health and some fixes may be harder and may take longer than others. But getting and being credit correct, is a good starting point for any proper credit profile.
Once you have your credit squared away, go ahead and get mortgage pre-approved, find a Realtor, buy a house, start a family, build a career, and all that other stuff!