Let’s welcome the New Year with great credit! Here are three easy tricks that can make a world of difference in your financial life.
Pay a Little Extra
Paying your credit card bills on time is an obvious must, but now those who pay more than the minimum payment will be rewarded. If there is a home purchase in your future, your application will get preferential treatment if you have a history of paying extra on your credit cards.
Fannie Mae, the largest buyer of mortgages, has already incorporated this rule into their underwriting guidelines used by most banks and lenders. Other non-mortgage lenders may follow.
Open a New Account for the New Year
If there was a period of bad credit in your past, marred by late payments, opening a new credit card now may be just what the doctor ordered. The FICO credit scoring model puts extra weight on these accounts.
Those old accounts that you have brought current and are now paying on time are wonderful, but a new account signals that you have moved past your problems and should be considered a lower risk. You will be rewarded by a surprising increase in your score within just several months of on-time reporting of your new account.
Loan Application Planning
If you plan to get a loan, buy a home, or get a car, start preparing at least three months in advance. Two small efforts will make a world of difference.
First, reduce your credit card balances. Try to get your balances down to twenty percent of your credit limit. If you have a one thousand dollar limit, shoot for a two hundred dollar balance. The difference between a high balance and a low balance can be as much as a shocking one hundred points.
Second, stop the inquiries. Don’t let anyone run your credit. If you are at a department store and are offered a store card, just say no. If you are shopping for a home, wait until you close to apply for that furniture store loan. Each inquiry may only cost a few points, but small differences in your scores can translate into costly differences in your future payments for months, or even years, to come.