580 credit score. Medical collections. A judgement from a previous landlord. Late payments on student loans.
These are common struggles that we see our customers facing at the Pathfinder HomeOwnership Center. Every case is different. Every situation unique. Our experienced staff have been able to offer sound credit advice and help customers understand this game of credit we all must deal with. We’ve helped over 2,500 households break through those struggles to find their path to homeownership.
While every situation can be different, there are several basic principles we can all follow to keep our credit on the right track. The list I’ll give is not comprehensive, nor will it fix all credit ailments, but following these “moves” in the credit game can still really improve things:
1.) Keeping “Revolving Account” Balances Below 30%
a. Revolving accounts include credit cards and charge accounts or any account that offers “revolving” credit. In other words, you’re able to charge to that account at any time rather than it being a loan that you cannot add a charge to after taking out the loan.
b. Keeping the balance on these accounts below 30% does a couple of things. It shows creditors that you’re willing to use credit and take on debt but can also be responsible with your debt by keeping balances low and not relying on debt to keep you financially intact.
2.) Charge & Pay Tactic
a. This credit “move” can be very beneficial in raising your credit score. If you have a charge account at a department store or a gas station, it’s good to use that account once a month. Gas cards are perfect for this. We all must put gas in the car. So, go fill up, charge it to that gas card, then that same day or in the next couple of days – pay it off in full. This does two things – it gives you those brownie points on your credit because you used an account. Then by paying it off right away, you avoid paying the interest that would hit at the end of the month or the end of that billing cycle. It’s a win – win for you.
3.) Keep Good Accounts Open
a. Many folks we talk with want to pay off a credit card or charge account, then close them. If you feel that you can’t stay disciplined to not use them, then that is probably your best choice. However, if you can resist using them too much, keeping accounts open is always a positive effect on your credit. The history of an account is a big part of building good credit. I have accounts that have been open for 15 years. I’ll never close them because to lose that kind of account history would drop my scores significantly.
4.) Pay A Little Extra on Installment Loans Each Month
a. Installment loans include any loan you take out that has a fixed amount, a fixed term and a fixed interest rate and monthly payment. Auto loans, student loans, etc. With these loan types, every month if you can swing an extra $10 or $20 or however much you are able to – that will pay off big for you in the end. One reason is because it looks very good to a creditor and the credit bureaus that you pay a little extra on your loan each month. Also, it will save you on some interest long term over the life of that loan.
5.) Shop for Loans or Cards Together
a. One common mistake made in the credit game happens while you’re shopping for a loan or a credit card. Take a car for example. You go to the car dealership and allow
them to run your credit. They will run it through 5, 10, or maybe even 15 lenders they work with to see who will offer the best deal that day. If you purchase that day, then those multiple credit pulls will show on your credit but will only “ding” your score once because it’s clear that you’re “shopping” for credit. The mistake comes when you decide to hold off after talking with the car dealership, then come back a month later and they re-pull your credit again. All those pulls will show up on your credit and because of the time gap between them, you’ll get hit for both times. Anytime you shop for credit or take out a new loan or credit card/charge account, it will drop your scores for a little while. But the more you have your credit pulled, the worse it will be on your scores. So “bundle” your credit pulls all at the same time whenever you’re looking to take out more credit.
If you are ready to get your credit on the road to repair, feel free to reach out to us at the Pathfinder HomeOwnership Center. Thanks for reading and we hope you will keep an eye out for next month’s newsletter when we share insight on the do’s and do not’s when buying a home.