Spring Cleaning for your Credit

If you are thinking of buying a new home, or refinancing your current mortgage, it may be time for a little spring cleaning. Not the kind that involve a mop and some Spic and Span, but a thorough review of your credit to ensure you are get the best interest rate possible.

Your credit score in a number generated by several agencies that track a person’s borrowing and payments. The most common score is the FICO score, which ranges from a low of 300 to a high of 850. The higher your score, the better. Credit scores above 670 are considered good to excellent. Those with good or excellent credit scores may easily obtain loans, with the most attractive interest rates. Those with poor credit scores will pay much higher interest rates, or even be denied loans.

What goes into a credit score? The amount you owe is only one factor considered. In fact, having no debt actually results in a lower credit score! Your payment history has the greatest impact on your credit score. Second is the ratio of your current debt to the amount of credit available. For example, if you have a credit limit of $10,000 on a credit card, and your current balance is $5,000 you are using 50% of your available credit on that account. The length of time you’ve had a credit history and the variety of loans (credit and store cards, car loans and other installment loans, mortgages) you have also impact your credit score.

So how can you clean up your credit?

Obtain your free credit reports

The first step is to find out what your credit score is and what is driving that score. Three credit bureaus are required to provide you with a free credit report once a year. Experian (https://usa.experian.com/), Transunion (www.transunion.com/get-credit-report) and Equifax (www.equifax.com/personal/credit-report-services/free-credit-reports/) each have links on their website that allow you to download your credit report once a year. This is an excellent place to start. Your credit report will show each account with a current balance and indicate if you are paying on time. Review these reports for errors, accounts you did not open, or have closed to ensure they are accurate. Each credit bureau has a dispute process to challenge information in the report.

Pay bills on time

This might seem obvious, but it bears repeating. Making payments on time will help keep your credit score high. A late payment remains on your credit report for 7 years, and payment history is the largest factor in your score, so paying on time is key to keeping your credit score high.

Resolve delinquent accounts

If you have a past-due account, settling up with that account will begin to improve your credit score, although this does take time. If you are unable to completely pay off the delinquent account, you may be able to negotiate a pay-off plan with the creditor, or at least begin to make catch-up payments to eliminate the past-due balance over time. Every little bit helps.