Wednesday, September 23, 2009
Patience is a virtue; you simply need it if you want to build a good credit score. One of the things on your credit report that determines your score is the length of your credit history, especially the length of your good payment history. This you cannot change. What you can do, however, is pay your bills on time, keep your balances below the specified numbers, and wait patiently. It only takes a couple of years to build credit from scratch; it only takes a couple of years to recover from bankruptcy. If you pay your bills well, time is your most valuable ally. After a couple years, you will find it very easy to get a bankruptcy equity home loan.
It is important to keep a variety of credit types. For example, if you need a new refrigerator, you are faced with two options (among many). You can get a new credit card and pay for the refrigerator with that, or you can take out an installment loan directly with the retailer. Say you already have three credit cards. It would be better for you to take out the installment loan (all other factors being equal), as it adds variety to your credit portfolio. Additionally, if you have several credit cards open, close a few; you only need one or two. However, don’t close your oldest one, as will be discussed next.
Balances other than revolving are treated differently in determining your credit score. Non-revolving and non-mortgage loans are treated differently; mortgage loans are also a class of their own. Lenders like to see that you don’t owe too much money. It is generally recommended to keep them as low as possible, but one thousand dollars is the target number. You don’t want to go over one thousand dollars. Again, this can be found by obtaining a copy of your FICO score. It says that FICO high achievers do not let their balances of non-revolving non-mortgage loans go over a thousand dollars.
First, you need to understand what a revolving balance is. A revolving balance is an account that has no set amount borrowed from it, but a credit limit. The account holder can use the money in the account like cash, but he or she must pay it back. Typical examples of revolving credit are credit cards and lines of credit. In determining your credit score, lenders like to see that you keep your revolving credit below seven percent of its credit limit. While many argue that a higher number, most commonly thirty, is the correct number, this is not true. If you pull your own FICO score, it will tell you that high achievers stay below seven percent.
In order for you to fix your credit score, you must pay your bills on time. This is the most critical factor. Without it, none of the other tricks will work. With it alone, your credit score will be good. The other tricks are used simply to move a good credit rating to an excellent credit score. While it is impossible, to achieve a perfect credit score (850), one can achieve in the high 800s. Anything aboove 760 is considered excellent. Paying your bills on time proves to your lenders that your word is good, and that you can be counted on to pay your bills in full and on time.