Establishing Your Credit
Don’t have credit, or would like to improve your credit? Building good credit
doesn’t have to be difficult, but it does require time and patience. Follow
these tips and you’re on your way:
- Pay your bills on time.
Credit scores emphasize your most recent payment record. Paying on time raises
your credit score. If you’ve been late, start paying on time!
- Pay at least the minimum amount required.
You can always pay more - and it’s a good idea if you can afford to. But you
should never pay less than the minimum.
- Keep your credit card balances
low.
Don’t "max out" your credit cards - that can lower your credit score.
- Don’t
apply for too many loans or new accounts.
Applying for a lot of credit in a short period of time may concern mortgage lenders that
you won’t manage your debt well. Only apply for credit when you need it.
- Keep
your debt-to-income ratio, at 20%.
Generally, you should not have debt that’s
more than 20% of your net monthly income.
- Establish credit if you don’t
have any.
Open a free or low-cost checking or savings account and make regular deposits.
Only write checks when you have money to pay for things. And apply for one
or two credit cards, use them carefully, and pay them off each month.
Credit Reporting Resources
Credit Bureau Score:
A number representing the possibility a borrower
may default; it is based upon credit history and is used to determine
ability to qualify for a mortgage loan.
Another Reason to Pay Your Bills on Time
More mortgage lenders, wary of taking undue credit risks, are looking at new ways to gauge whether to lend consumers money, such as how they pay their rent and utility bills. Here’s how credit bureaus and others are using nontraditional payment data:.
In addition to using data from Equifax’s own credit files, as well as data it has collected on rent and utility payments, for example, the score pulls information from LexisNexis to verify identities and flag any negative information, such as tax liens, bankruptcies and criminal records. Score range: 501 to 900.
Relies on payment data, such as telephone and utility records and catalog or Internet purchases, provided by eBureau LLC, in addition to data from its own credit files. Score range: 100 to 999.
Looks at information on how consumers pay their rent, cable and utility bills, among other things, by pulling information from several databases and public records. The score has the same range as the traditional FICO score: 300 to 850.
The score, which is used by mortgage mortgage lenders, is based on alternative payment sources, such as rental, insurance and utility payments.
At PRBC, consumers can create their own credit file by reporting monthly payments to the company, which verifies the data for a fee and creates a credit file and score for mortgage lenders. Users can also use a bill-payment service to have their bills automatically reported to PRBC for free.
In addition to using data from TransUnion’s own credit files, the score relies on data provided by L2C Inc., such as consumer’s payment histories on their rent cable and utility bills. Score range: generally between 300 and 850.
Resources
Do you need help getting your credit in order? Find a credit counselor.
Do you know your credit rights? Look at the FTC’s information on credit and consumer rights.
Are you credit card savvy? Visit PBS’s Frontline Web site for the Eight Things A Credit Card User Should Know.
For more helpful mortgage tips on establishing credit, mortgage refinancing, home loans, reverse mortgages or a home equity line of credit, contact FreeLoanComparison.com today!
Last update: November 14, 2008
