With credit scores being increasingly important, here are some smart suggestions that will help you keep your score as high as possible. This content is courtesy of my AR associate, John Meussner.
The Fastest Way to Raise Credit Scores
Whether it's fair or not, when it comes to buying a house and planning out your financial future, there is one thing that will make everything else either much easier, or far more of a challenge: a FICO score. With a high FICO score (above 740), applying for loans is easier, interest rates are lower, and things are grand. With a lower FICO score (below 640), rates can be very high on borrowed money, and the process of getting that money can be more difficult.
While the past can't be controlled, there are things that can be done to increase a credit score (sometimes substantially) in a short amount of time so that the immediate future can be a little bit better.
Improving your credit utilization ratios
Let's say you have 1 credit card with a $1000 limit and a $900 balance. Your neighbor has 10 credit cards with a $50,000 total credit limit. That neighbor has $10,000 in total credit card debt. Even though you have only $900 in debt compared to their $10,000, your credit is being damaged while theirs is likely looking good. How is that fair?
Well, it's not. But you're using 90% of your available credit, and they're only using 20%. This is your credit utilization ratio - the proportion of balances to credit limits on your report, and other than the punctuality of your payments, it's the biggest factor in your credit scoring. Ideally, you want to keep your credit utilization under 30% of your limit - on both individual cards, and your total credit profile.
If your proportion of balances to credit limits is a little high, there are a couple ways to almost immediately raise your scores. The first (and obvious) is to pay your balances down. If you get under 50% of your limits, you'll see an improvement, and when you hit below 30% you'll see some real gains. If you're not in a position to pay down your balances, you can also ask your creditors to increase your credit limits for the same effect (remember, if they increase the limit, don't use the card!).
One reason someone may not have great credit is simply because they don't have much history. An easy way to get around that is to piggyback off of someone else's credit by becoming an authorized user on an account. This is a great tool especially for young people needing to establish credit, if parents or another person close to them with a great credit history is willing to help.
By becoming an authorized user on a credit card, the account information will populate in your name. This is especially helpful when the account is seasoned, and has a low utilization percentage. I've seen some people with authorized accounts that are nearly as old as they are, and more often than not, these folks have great credit scores as a result.
Important Note: As an authorized user, the credit information will appear on your report for better AND worse. If you're an authorized user, make sure the account holder is responsible and that the account is and will remain in good standing.
There are many other ways to improve credit scores, but these are 2 relatively fast ways that can lead to big increases to FICO scores without having to go through a credit repair program that takes 60 days to 6 months. For more info on the best ways to fix up credit scores and get mortgage ready, give me a call at 484.680.4852.
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