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damonster
Member since Sep 2010
498 posts

Building Credit Score


My wife and I are looking to take out a mortgage within the next 5 years to build our first house. We recently inherited a nice piece of land and would like to build in the next 5 years. I don't think I have the ideal situation that a bank would approve a loan for me, but I'm working on it. I have defaulted student loans but have just completed a student loan rehabilitation program where the student loan people are supposed to remove all negative reports to the credit agencies. I have 2 store credit cards that I mainly use for larger purchases where I get interest free financing for like 12 months or 18 months depending on the amount of the purchase. I usually pay those off in half the time that the store gives me. My wife has a car note and some outstanding student loans that she is paying on. What are some things that we can begin doing now to have our credit scores in the best possible condition when it comes time to apply for a home loan in 5 years?






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LSU5508
LSU Fan
New Orleans
Member since Nov 2007
503 posts
 Online 

re: Building Credit Score


First thing is to pay down your debt on your store cards. While you indicate you use these cards for large purchases only, these cards usually carry lower limits so placing large purchases is actually a bad thing. One important factor in determining your credit score is your credit utilization. If you make a $1,000.00 purchase on a card with a $1,500.00 limit you would be using 66% of your available credit. Most banks take this as a negative. As a rule keeping balances to less than 30% is optimal. Also remember that construction loans usually require at least 20% down so make sure you save while paying down debt.


This post was edited on 1/21 at 1:02 am


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foshizzle
LSU Fan
Washington DC metro
Member since Mar 2008
28602 posts

re: Building Credit Score


quote:

the student loan people are supposed to remove all negative reports to the credit agencies


I didn't think this was possible, but could be mistaken. But I digress.

It's true that having a high credit utilization rate from the large purchases will temporarily ding you. But so long as they are paid off by the time you apply for a loan it won't matter, because what counts is your utilization rate at the time you apply.

Probably the biggest thing that will help is just waiting until bad items fall off your report. By law they must be removed seven years after they are first reported. Once it's been seven years you can call in and have them removed if they haven't been already.

Otherwise it's just making sure you pay the bills on time, it's about the simplest financial plan out there.






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JonTheTigerFan
LSU Fan
Central, LA
Member since Nov 2003
4579 posts
 Online 

re: Building Credit Score


My wife did the student loan rehab program and her's show "pays as agreed" with no negative marks. Make sure you don't have any lates from now until you apply for a mortgage. If you want to get your credit score before applying, go to MyFico.com and buy your FICO score. Any other scores you get are considered "FAKO's" and aren't used by any lenders. When it's time to apply, have all credit cards reporting zero balance. Leave a small (between 1% and 9%) balance on ONE card. This will maximize your FICO score. Don't apply for or open any unneeded credit before then. If you do, you need to do it soon. If you do it close to the time you apply for the mortgage, it will lower you Average Age of Accounts, which is another major factor in the FICO scoring model. Oh, and don't assume you have to wait 5 years. You may be in a better position than you think. Good luck.





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Will Cover
Gonzaga Fan
Nashville, TN
Member since Mar 2007
23888 posts

re: Building Credit Score


quote:

Building Credit Score


In order to give you a credit score, the system tracks and measures:

• The number of credit accounts you’ve had
• How long you’ve had credit
• How many times you’ve been late
• How much you owe compared to how much credit you have
• How many times you’ve applied for credit in the last 2 years
• And the number and kinds of super-bad listings (collections, consolidated loans, bankruptcy, etc.)

Your FICO score can change whenever your credit report changes. But your score probably won’t change a lot from one month to the next. In a given three-month time period, only about one in four people has a 20 point change in their FICO score.

quote:

I have 2 store credit cards that I mainly use for larger purchases where I get interest free financing for like 12 months or 18 months depending on the amount of the purchase.


MYTH: Paying my credit card charges early helps my credit score.

FACT: There’s nothing on your credit report that shows when a bill is paid, only whether it was paid on time.

Those two individual retailer cards probably means you have open lines of credit, which the credit bureaus tend to view as potential trouble and could potentially be hurting your credit score.

quote:

What are some things that we can begin doing now to have our credit scores in the best possible condition when it comes time to apply for a home loan in 5 years?


Needing a credit score is a common myth that has been perpetuated by credit card companies, banks and others who have a financial stake in making sure that you believe having a good credit score means you’re winning financially.

The truly wealthy (or those that will be wealthy someday) know that their credit scores (and credit bureaus) really don’t matter in the long run.

MYTH: By being responsible with your checking, savings and investment accounts, you will positively impact your credit score.

FACT: Like income, your checking, savings, investment account activity and net worth – anything other than debt is not reported to the credit bureaus and does not affect your credit score.

But to answer your question, if you follow this criteria, your credit score will improve:

• 35 % Debt History (What is your track record?)
• 30 % Debt Level (How much is too much?)
• 15 % Length of Time You Have Been in Debt (How established is yours?)
• 10 % New Debt (Are you taking on more new debt?)
• 10 % Types of Debt in Use (Is it a healthy mix?)








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foshizzle
LSU Fan
Washington DC metro
Member since Mar 2008
28602 posts

re: Building Credit Score


quote:

FACT: Like income, your checking, savings, investment account activity and net worth – anything other than debt is not reported to the credit bureaus and does not affect your credit score.


This is correct. A credit score is supposed to measure how well you handle credit. Not assets. Not even debt, precisely. It's credit, which is what you are able to borrow in addition to what you have borrowed (debt).

quote:

Needing a credit score is a common myth that has been perpetuated


You don't need one, but modern life is much easier if you have a good one.






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Will Cover
Gonzaga Fan
Nashville, TN
Member since Mar 2007
23888 posts

re: Building Credit Score


quote:


You don't need one, but modern life is much easier if you have a good one.


I agree, but Manual Underwriting and eCredable can be good alternatives for obtaining a mortgage without a credit score.







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weaglebeagle
Auburn Fan
Alabama
Member since Jan 2011
1303 posts

re: Building Credit Score


On top of the things that have been mentioned I would suggest a site called Credit Karma. You can monitor your credit report there for free and it gives a good estimate of what your credit score is. I don't conisder it a good replacement for getting a report and score directly from the three bureaus but it will give you a good idea of where you stand.

I don't know if it's been mentioned but one thing that will help is having a longstanding credit card or something. Also, having more lines of credit can improve your score. (I wouldn't suggest trying that though because each hard inquiry to open a new line of credit will hurt your score.) Also I believe that the average age of your credit accounts is weighed also so when you open a new account it pulls down the average age of your accounts.

I know the only thing holding my credit score back is the age of my accounts and there's nothing to do about that except for letting time pass and not closing old accounts.






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