Preparing for Homeownership

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Good financial habits make for good credit. If your credit score is not where you would like it to be, there are steps you can take to bump up your score. Practicing the habits below will help you boost your score. 

• Ensure timely payments: 

Since payment history holds the largest weight in your credit score, it is crucial to consistently make payments on time.

• Reduce existing debt: 

Even if you have a perfect payment history, a high debt load can lower your score. Paying down balances and maintaining a low utilization ratio on revolving accounts will have a positive impact. Consider strategies to lower interest rates, allocate more funds towards payments, and reduce revolving debt.

• Exercise caution with additional debt: 

In addition to managing existing debt, it's advisable to avoid taking on new debt whenever possible. For revolving credit, aim to only charge amounts that can be paid off in full the following month. Ideally, keep balances well below half of the credit limit.

• Review your credit report for errors: 

Credit reports often contain inaccuracies. Check your reports from the three bureaus annually and dispute any incorrect information you come across.

• Retain old accounts: 

Maintaining long-standing accounts demonstrates stability and contributes positively to your credit history.

• Use caution with balance transfers: 

While transferring balances to cards with introductory 0% interest rates can be beneficial for debt repayment, it can also temporarily impact your credit score. New accounts and balances close to the limit may lower your score.

• Minimize credit applications: 

Each time you apply for credit, there is a minor decrease in your score. Frequent applications may indicate reliance on credit to cover expenses. Try to limit inquiries to a maximum of two per year, unless necessary when shopping for a mortgage or auto loan.

• Exercise patience: 

It's important to remember that credit mistakes do not haunt you forever. Recent payment history from the past two years carries more weight than older information. 

It's important to remember, most negative information is removed from your report after seven years. However, a Chapter 7 bankruptcy remains on your report for 10 years, and government liens persist until the debt is repaid.

End of Lesson 1:  

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