“Your credit report and credit score are two of the most vital aspects of your financial health.” (Erin Lowry)
Having a clean credit report and a healthy credit score is vital to getting great interest rates for real estate loans. I know it can be a daunting task to keep a close eye on your credit report and maintain a healthy score, but it is so important for your financial health.
So, how do you maintain clean report and a healthy credit score?
Monitor your credit report
Contact each of the following agencies Equifax, Experian and Transunion and view your credit report and score. Be sure to pay for a copy because the free reports do not include your credit score. Check your credit from all 3 agencies at least once a year.
Inspect your report for personal information, making sure what is listed is current and accurate. Another important aspect to note on your report is the accuracy of your closed and open accounts. As many as 30% of reports incorrectly list closed accounts as open–which can negatively impact your score!
Dispute any mistakes or incorrect information
Unfortunately, about 79% of all credit reports contain mistakes of some kind. So, file any disputes promptly. To file a mail-in dispute will take about 30-45 days and an online dispute takes at least 30 days. So, file as soon as you find a mistake or error.
Furthermore, 25% of credit reports contain errors that result in credit denial. If you have been denied credit due to an error on your report, your lender can order a rapid report with corrections. Here is more information from the Federal Trade Commission on disputing information on your credit reports.
Pay the minimum due ON TIME
Lenders are looking to see if you are responsible enough to pay your bills on time, so be sure that you are paying ALL your bills on time each month. Paying the minimum due on time shows the lender that you are a good credit risk. Being able to pay the minimum on time makes up 35% of your credit score. So, this is a BIG reason to pay ON TIME.
I am not a proponent of only paying only the minimum if we are talking about debt and wealth building, but in terms of your credit report and credit score, the minimum is all that needs to be paid to ensure a healthy credit score. If you are having a difficult time paying ON TIME, set up reminders on your calendar through your phone, computer or even set up automatic payments with your bank!
Reduce your credit card balances
Keep your credit card balances no more than 50% of available credit! The best case scenario is to keep your balance no more than 33% of whatever your available credit is. So if you have a $10k limit, it’s best not to owe more than $3,300 at any given time. By limiting your credit card balances or paying them off each month, you will have a great debt-to-credit ratio. The debt-to-credit ratio accounts for approximately 30% of your credit score.
Build and maintain your credit history
Debit card payments aren’t tracked by the credit bureaus, so you will need credit card charges to help build a credit score. About 15% of your credit scores come from your credit history. So, don’t cancel a credit card that you no longer use, just keep it with a zero balance. Cut it up if you need to, but keep it on your credit report to show credit history.
Maintain your credit history by not adding any new credit cards to your report. The offers for new credit cards are rampant—they come in the mail and you are asked at every store you shop at. Learn to say no. Your credit card count is responsible for about 10% of your credit score.
Maintaining a clean credit report and a healthy credit score takes work, but it will be worth the effort when you are looking at real estate loans.
Some of you already have a healthy credit score, but have you checked if your credit report is clean and accurate?
Others of you might need to improve your credit score or build your credit history, so which step listed above can you focus on?
If you want more information about credit reports and credit scores to help you buy real estate, be sure to check out the Real Estate Workshop this September in Denver. Credit scores and credit reports are one of the many topics I will be sharing.
This is really helpful. What’s your stance about Dave Ramsey advice to have no credit score/credit cards and no debt? Thanks so much,