Loans

Do you want excellent credit?

One of the common misconceptions out there is that paying your bills on time will get you the highest credit scores. This is only one of the ways to accomplish great credit.

Are you interested in getting 800+ credit scores? The following tips will help you break down the ways to get there.

1. Pay your bills on time: This is the obvious first step. If you go 30 days late (or 60, 90, 120, etc.) it is extremely hard to have this removed from your report. You do NOT want to be late or have a collection after a bankruptcy. This will make it very hard to get a loan. Most lenders will deny you if you have late payments and or collections after a bankruptcy (without acceptable explanation).

2. Manage your balance/credit limit wisely: To achieve the highest scores, it is imperative that you have a balance less than 20% of your available limit. If you owe more than 50% of your limit, it is bringing your scores down. If you owe between 20 to 50%, it is keeping your scores the same. If you owe less than 20%, it is improving your scores. If you are going to buy a home soon, pay down your accounts. Always start with the smallest card (limit) and work your way up! If you are paying down debt to improve your scores, it would be wise to call the creditor you are paying to find out when they report to the three credit bureaus. The creditor may report at any day during the month and you will want your credit pulled once it has been updated. Also, another tip is to increase your high limit whereas you will not have a lower ratio of owed vs. limit.

3. Don’t close accounts: Closing accounts can and will have a negative impact on your credit. If there isn't a yearly fee and there is no need to close an account, keep it open. The longer you have an account and the balance is close to zero, it will only improve your scores.

4. Length of accounts: The longer your accounts are open, the better your credit will become.

5. You must have credit to have a credit score: This is a big problem for most people. If you don't have credit cards or only have one, be prepared to have poor to fair credit. Credit is based on many different factors; one of which is how many accounts you have. Most people that have 800 credit scores tend to have 6 to 15 open trade lines/accounts. If you have limited credit right now, start opening a few accounts. If you don't have good enough credit, be prepared to open a share secured credit card that is tied to a deposit account. Opening new accounts may lower your credit initially, but will start improving your credit after 3 months or so.

6. Loans vs. Revolving Credit: Many credit vendors advise that the best way to achieve the maximum credit score is to have three revolving trade lines (Visa, department store, etc.) for every installment loan (mortgage, line of credit, car payment, student loan, etc.). You don't want to have one car payment and 25 credit cards! The key here is balance.

7. Using your credit: While you want to have somewhere between a 0 and 20% balance compared to your limit, you will want to make sure you still use your credit cards on occasion. If you don't owe anything, buy lunch occasionally on the card and then pay it off when you get home.

8. Inquiries: Many people wonder if their credit scores will come down if someone pulls their credit. This depends because if you don't have your credit pulled often, no it won't. If you have your credit pulled every week, it will. Consult your lender about how inquiries are going to impact your score.

Whether you are looking to refinance or even buy a home in the near future, it would be worth it to review your credit now so you can be fully prepared and ready to receive the best rate possible. Abri Credit Union has an experienced lending department for secured, unsecured, mortgages and home equities that can guide you through the process or maybe just answer a few questions!