It is true that negative credit items can remain on your credit report for up to 7 years (up to 10 years for public records, such as a bankruptcy, tax liens or judgments). But this doesn’t mean that you have to wait 7 to 10 years to begin re-establishing a good credit score.
Credit scores were designed to “predict the statistical likelihood of a consumer becoming 90 days late or more on a particular obligation.”
Credit scoring models lend more weight to your recent activity rather than to the mistakes you have made in the past, you can change your habits right now and begin re-establishing yourself as a good credit risk. This will greatly increase your chances obtaining new credit or a refinance loan 6 to 12 months down the road. If you are hoping to qualify for the $8000 Tax Credit there is not much time left…SO GET MOVING!
Here are a few Do’s and Don’ts when it comes to rebuilding your credit.
Three months prior to securing new credit, like a mortgage, DON’T apply for, close, or pay off any collections, charge-offs, loans, or other kinds of credit without speaking to a professional first. Any one of these actions, as innocent as they might seem, could seriously affect your credit score, adding significant costs to your mortgage should your score suddenly drop.
If you have any credit card accounts with excellent credit histories, DO use them. But use them strategically. Keep your balances around 10%, and NEVER, above 30% of their limits 3-6 months prior to entering into a loan transaction. Use them only for small purchases that you can easily pay off completely at the end of the month. Remember, creditors like to see evidence of stability, so the goal is to keep the good reports coming month to month without falling into the same financial traps that led to credit challenges in the past.
If you don’t have a credit card, DO get a secured card immediately. This is a great way to rebuild or establish credit quickly. Because this account is secured by funds that you deposit (typically between $100 and $400) you’re not seen as a great risk to the card issuer because of your initial investment. Again, use this card strategically to build a strong credit history. Pay your bill on time every month, and it won’t be long before you qualify for an unsecured credit account.
For some, opening a credit account with a co-signer could be a better alternative, but it’s important to note that both you and your co-signer are equally responsible for any activity on this type of account, good or bad, so this strategy could backfire in the end if you or your co-signer makes poor decisions. DON’T mistake authorized-user for a co-signed account.
Finally, DO monitor your credit. If you don’t know how – click on the FREE!!! Credit Score Guide to learn.
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It usually takes three to four months for repairing your credit; so, if you are planning to obtain a loan or credit card, begin repairing your credit three to four months before you are going to apply for a loan or credit card.
It’s never too late to start trying to improve a credit score, but it is coming down to the wire to improve it enough to change your loan status prior to expiration of the $8000 first-time homebuyer tax credit. I’ve been advising my clients for months to get on the ball, and now everyone wants to buy a home at once, with less than three months before the tax credit expires. I’ve added have some other suggestions for home buyers in my most recent blog post… which relates well to this one. See below.
Geoff@San Diego Homes For Sale´s last blog ..Advice For Buying San Diego Homes
Hi,
Thanks for this great and very informative post. Really useful and great tips.
I am planning to apply for a bigger loan soon, so will surely use your advice.
Thanks a lot for sharing.
car hire France´s last blog ..Carcassonne Kangaroo Returns Home
Nowadays your credit score can land you into a job or may take away a very lucrative offer from you. yes the employers these days do a credit background checking of their prospective employees.So your good credit score does not only matter for securing a mortgage but also if you are planning to change your job. the tips you have mentioned in your post are highly recommended to secure a good credit score.
Jeffrey William@ student loan help´s last blog ..Now Playing: The Income Based Repayment Plan
That’s a relief for everyone in this position. At least ir’s not a long-term slog to regain a decent credit score.
These are all very useful tips. I especially appreciate your suggestion to use credit cards with a good history strategically.
I would also suggest that consumers understand their rights under the Fair Debt Collection Practices Act. Of course, most people would prefer not to be placed in a situation requiring protection from creditors, but sometimes it happens. Understanding your rights can make a big difference in digging yourself out of a hole.