IMPROVING CREDIT SCORES
I. HOW CREDIT AFFECTS RATES
Good credit = lower interest rates
It’s all about risk. When a Lender extends credit, there is a risk that the borrower may not repay the loan or pays late; it costs the Lender a great deal of money.
Lenders use your credit history, along with information regarding your assets, income and debts to predict how much is involved with the repayment of the loan.
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Low Credit Risk - Borrower with good credit histories, high credit scores, steady income and relatively few debts present a low risk of loss for Lenders. So these Borrowers often qualify for loans or credit with lower interest rates.
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High Credit Risk - Borrowers with credit problems, whose income varies substantially from month to month or whom has a lot of debt in relation to income poses a higher risk for Lenders. In order to offset the potential loss of money if the Borrower can’t make payments, the Lender must charge a higher interest rate on the loan. But over time, a Borrower can rebuild a good credit rating in order to take advantage of lower interest rates.
 II. HOW TO IMPROVE YOUR CREDIT
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Always Check Your Credit Reports - Check your reports at least once a year. Credit bureaus may not always have accurate or have up-to-date information. Errors do occur and can affect your credit scores drastically. To protect your credit, you also need to check for fraudulent activity.
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Close Unnecessary Credit Accounts - If you have a lot of credit accounts, consider closing those you aren't using or don’t think you'll need. That helps remove the temptation to overspend. Don’t close all your accounts however; you need to have some credit accounts in order to maintain a solid credit history.
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Create And Live By A Reasonable Budget - Whether your financial situation is good or bad, following a budget is the key to a healthy financial situation. No matter what your income, everyone must live within his/her means. Following a budget is a necessary tool to help prevent a disaster or snowball effect of growing debt. Try tracking where all your money goes for a couple of months to get an idea of what you must spend verses what you’re actually spending.
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Pay On Time, Every Time - Set up a system to remind yourself when bills are due. Keep all bills together, in order by date due and check weekly, or write the dates due for each bill on your calendar and check your calendar frequently. Paying credit card bills after the due dates can cost you a lot of money. Worse off, if you are 30 days past due, the creditor will usually report to all three credit bureaus, which will drop your credit scores. It doesn't stop there; your other creditors may now increase your interest rates as well.
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Pay More Than The Minimum, If Possible - When you make just the minimum payment due on a credit card you will never be able to pay off the debt, paying more than the minimum will save you a lot of money in interest.
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Prioritize Your Bills - Always pay your living expenses first so that you can survive. Bills should be prioritized as follows:
- Home Mortgage or Rent
- Utilities
- Groceries
- Immediate Medical Care
- Car Payment
- Secured Debts or Loans
- Unsecured Debts or Loans
- Collection Accounts, School Loans, and Medical Bills
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Be Careful Of Tricky Credit Card Offers - Many of balance transfers offering lower rates charge a fee
 . They also expire within 6 months to a year. You must pay the balance in full before expiration or they may back-charge to you all of their interest. You are usually charged high interest rates on your purchases and your monthly payments pay off the lower rate balance transfer first.
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Consider Using Your Home’s Equity For Debt Consolidation - If you've owned your home for a while, you may have equity you can use to pay off high-interest debt with a “cash out” Refinance Loan or Home Equity Line Of Credit. Since home loans can have much lower interest rates than credit cards and other types of loans, you can save a lot of money on interest. Because interest on home loans is often deductible, you may save even more (consult your tax advisor).
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Get Reliable Information And Help With Credit Issues - If you’re feeling overwhelmed by credit issues or problems, there are excellent free and low cost resources to help you. For information and publications on personal finance and credit problems, try these federal information resources.
Please give us a call today to find out how we can serve you!
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Phone: (713) 266-8401 / (800) 700-5970
Fax: (713) 266-0106
Mon-Fri 9:00 am to 5:30 pm (CST) |
Member – Texas Association Of Mortgage Brokers (since 2000)
Member – Better Business Bureau of Metropolitan Houston (since 1999)
Member – Texas Real Estate Association (since 1995)
Mortgage Broker License # 13570
 
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