Derek English: Repairing Your Credit Score
Wednesday, August 10, 2022 - by Derek English, president, Greater Chattanooga Realtors
Most people know the importance of maintaining a high credit score, especially when weighing financial options for purchasing a home. But what if you’ve fallen behind on some payments and your credit score has suffered as a result? What can be done to help bring that score back to where it should be?
In a recent article at Realtor.com, Jamie Wiebe shared these useful insights for individuals who are trying to rebuild their credit score:
Pull your credit report.
There are three major U.S. credit bureaus (Experian, Equifax, and TransUnion), and each releases its own credit scores and reports (a more detailed history that’s used to determine your score). Their scores should be roughly equivalent, although they do pull from different sources. For example, Experian considers on-time rent payments while TransUnion has detailed information about previous employers. Also, it’s a good idea to check with your credit card company. Many include free access to scores and reports. Check with individual companies for details.
Assess where you stand. It’s simple: The better your credit history, the higher your score—and the better your opportunities for a home loan. The Federal Housing Administration requires a minimum credit score of 580 to permit a 3.5 percent down payment, and major lenders often require at least 620, if not more. So what can you do if your credit report is in less than shipshape? Don’t panic, there are ways to clean it up.
Improve your credit score with error disputes. A 2013 Federal Trade Commission study found that 5 percent of credit reports contain errors that can erroneously ding your score. So if you spot any, start by sending a dispute letter to the bureau, providing as much documentation as possible, per FTC guidelines. You’ll also need to contact the organization that provided the bad intel, such as a bank or medical provider, and ask it to update the info with the bureau. This may take a while, and you may need documentation to make your case. But once the bad info is removed, you should see a bump in your score.
Erase one-time mistakes. So you’ve made a late payment or two—who hasn’t? Call the company that registered the late payment and ask that it be removed from your record. If you had an oopsy and missed just a payment or two, most companies will indeed tell their reporting division to remove this from your credit report.
Increase your limits. One no-brainer way to increase your credit score is to simply pay off your debt. Not an option right now? Here’s a cool loophole: Ask your credit card companies to increase your credit limit instead. This improves your debt-to-credit ratio, which compares how much you owe to how much you can borrow.
Pay on time. If you’re often late with payments, now’s the time to change. You have the power to improve your credit score yourself. Commit to always paying your bills on time; consider signing up for automatic payments so it’s guaranteed to get done.
Give yourself time. Unfortunately, negative items (such as those habitually late or nonexistent payments) can stay on your report for up to seven years. The good news? Changing your habits makes a big difference in the “payment history” segment of your report, which accounts for 35% of your score. That’s why it’s essential to start early so that you’re sitting pretty once you’re shopping for homes and find one that makes you swoon.
Thanks for these tips, Jamie. Maintaining a healthy credit score is very helpful when looking to purchase something as expensive as a car or house. When you’re looking to purchase or sell real estate, utilize the expertise of a realtor to make the process as seamless as possible. Realtors work for their community every day. That’s Who We R.