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Build your credit with these easy steps

Posted by Mission del Lago on Sep 8, 2015 8:00:00 AM

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The two critical components necessary when buying a home are down payment and credit score. While down payment requirements and their origin (gifts, grants, and other programs may take the place of buyer savings) can vary, a minimum credit score is always required. Buyers may be discouraged if their score is too low to qualify them for a loan, but, thankfully, there are ways to build credit with these easy steps.

1. Figure out what you’re dealing with

Log onto AnnualCreditReport.com to get your current credit score for the three credit bureaus. This is free to everyone once every 12 months.

Once you know your scores, it’s time to go about checking for mistakes on your report.

2. Dispute errors

If you find mistakes on the reports, you can dispute them.

“You can contact the lender (or collection agency) who is reporting the wrong information, the credit reporting agency that lists the mistake, or both,” said credit.com. “Asking the creditor to fix it may be the simplest approach, because if they do agree they made a mistake, they will be required to transmit the correction to all the agencies to which they report. That saves you the extra step of having to dispute it with other agencies that may be reporting the same incorrect information. If you find a serious mistake or if you are having trouble getting an item corrected, (also) make sure you also report the error directly to the credit bureau(s).

For more information on disputing errors, click here

3. Pay debts

If you have any unpaid debts or delinquencies, contact the debtors to get them paid. Start with the original debtor, who may refer you to a collection agency handling the account.

“You can’t deny that you stopped paying a credit card bill when you were unemployed last year. But you can ask creditors to ‘erase’ that debt or any account that went to collection,” said Forbes. “Write a letter offering to pay the remaining balance if the creditor will then report the account as “paid as agreed” or maybe even remove it altogether. (Note: Get the creditor to agree in writing before you make the payment.)”

Also, be careful not to agree to any negotiated amounts. Collection companies will sometimes use this tactic to get some money for an outstanding debt—especially on a high balance that you’re having trouble paying off. An agreement like this will stop collection calls, but it won’t improve your credit score.

4. Pay bills on time

“Delinquent payments, even if only a few days late, and collections can have a major negative impact on your FICO Scores,” said myFICO

Reduce the amount of credit you owe on existing cards—“One of the major factors in your credit score is how much revolving credit you have versus how much you're actually using. The smaller that percentage is, the better it is for your credit rating. The optimum: 30 percent or lower,” said Bankrate

5. Manage existing debts

A few smart strategies can help existing debts be a positive instead of a negative. If you have small balances on multiple cards, pay them off. But don’t move balances around from card to card—that can have a negative impact on your scores.

6. Leave older balances alone if they are close to seven years old 

That’s the point when the items should disappear from your credit reports on their own.

7. Get a credit card

“Having one or two pieces of plastic will do good things to your score—if you don’t charge too much and if you pay your bills on time,” said Forbes. “In other words, be a responsible user of credit. Can’t get a traditional card? Try for a secured credit card, taking care to choose one that reports to all three major credit bureaus.” However, if you’re working with a lender and trying to raise your score quickly in order to buy a home, be sure to check with your lender before applying for new credit, as your score could take an immediate hit before getting better.

Don’t have a credit history? You can use these tips to build one from scratch. 

For information living on the South Side, visit Mission del Lago or click below to view move-in-ready homes.

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Topics: credit score