Strengthening your credit file
Your ability to obtain
a mortgage, auto loan or credit card depends on your
past credit behavior and how lenders score your credit
rating. Your financial habits are tracked by creditors,
who then report them to the credit bureaus. That credit
history is what you see when you get a copy of your
If you know you have a low score because
you have not established a credit history or you have
a blemished credit record, you can take a few steps
to build it up:
Apply for a department store card or gasoline
credit card, which are relatively easy to qualify for,
and pay your bills on time.
You can also take out a secured credit card by depositing
money with the issuing bank.
If, however, your credit score is low
and your debts are out of control, the worst step you
can take is to ignore them. The sooner you deal with
your credit problems, the more lenient lenders will
be and the less painful your exit from debt will be.
Some of the red flags potential lenders
look for in your credit report are:
- late payments
- recent credit inquiries
- overextended credit
- paycheck garnishments
Americans are up to their ears in debt,
and if they're not careful, it is going to become more
and more difficult to strengthen credit files.
Some bad financial habits are relatively
easy to stop. Habits such as: Bouncing checks because
you don't balance your account, underpaying or making
late credit card payments, are simple to fix. But, bad
credit habits have major repercussions -- causing divorces,
bankruptcies, lost dreams and emotional wreckage.
When it comes to securing a mortgage loan,
here are a few simple strategies to strengthening your
credit file beforehand.
Double-check the rates and fees you're
now paying on your credit cards. The rate may have gone
up over the past year if you're carrying a variable-rate
card which is tied to some index. The average credit
card fixed rate at the start of 2003 was 13.77 percent,
and there are better deals that exist.
Also, check to see if the card's annual
fee has been raised. The maximum you should pay is $35.
Remember: You want to minimize debt because bankers
like to see that your total monthly debt does not exceed
36 percent of your gross monthly income, including your
It's important to know your credit limit, which is based
on your income, the amount of your current debt and
your credit history. It's not important to carry more
than two credit cards. Simply carry the number of cards
you need, even though you haven't used up your credit
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