Hey there you are. I have been expecting you. I am Brandon Cornett, publisher of of HomeBuyingInstitute.com and welcome to another edition of Real Estate Whiteboard. Today, I am going to talk to you about an important topic to a lot of people in this economy. I am going to tell you how to raise your credit score, so that you can get a better loan, get better interest rate on a loan, to qualify for a mortgage and buy a house. I am going to tell you how to do this in 90 seconds or less.
Let's talk about the three things that factor into your credit score the most. In other words, the three items that determine your score more so than any other item. At number one, payments. Now what I mean by payments, in fact, I am going to put payment history, this refers to how you paid your bills over the years. Car loans, student loan, a previous mortgage if you had one and in particular credit cards, we all have credit cards.
Your payment history is going to weigh a lot to your credit score. So if you have a habit of missing payments on credit cards and loans and things like that, it's going to have a negative impact on your credit score. It's going to lower your score and a lower score is bad because it means you are going to have a harder time qualifying for a mortgage loan and getting a good interest rate on the mortgage loan. Pay your bills on time.
Item number two is Amount used and what I mean by that is how much of your available credit are you using. They call this the utilization ratio which is a fancy financial way to say, if you have a lot of credit and you are only using a little bit of it then your utilization ratio is low. That says that you do a pretty good job managing your finances and you don't over rely on credit.
So let's say that this column here represents your available credit line. If you are only using this area down here, then your utilization ratio is low and that's going to have a favorable impact on your credit score. However, if you are up here, okay, you have used all of that, you almost max-out your credit cards and that's a good thing. That's going to have a negative impact on your credit scores to lower. So pay down your credit card balances, okay anything like that, that you have stretched the limit, work on paying that down. The more you can reduce that the better ratio you have, the better credit score you have.
The last thing I want to talk about is the length of the credit history, that's another important factor. These three things combined influence your credit score more than anything else. What I mean by the length of your credit history is how long have you been paying bills, how long have you had credit accounts. Keep this in mind, when I talked about the credit utilization ratio. Some people think I will just close all of my credit cards because that will help my credit score. Not so fast. If you close your oldest account, your oldest credit card, the one you got when you first turned 18, you are shortening your credit history and if the information more recently is negative information then you are going to lower your credit score because you have shortened the length of your credit history.
So keep those accounts open, especially your older ones but you can pay them down so that you will reduce the utilization, you don't want to max out your credit cards. Make all your payments on time. All of your bill payments, especially don't go beyond 60-90 days because that's when these companies will report it to the credit reporting agencies.
The amount used, reduce your credit card balances and be careful not to close your oldest accounts because that will shorten your credit history and have a negative impact on the credit score. So there you go. I think I have gone over 90 seconds but that's how to improve your credit score by focusing on the three most important factors that influence your credit score and I hope this helps you in 2009. Good luck.
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