Know Your Starting PointObtain a copy of your credit report from all three credit bureaus so that you have a clear understanding of what it says about you and your credit history.
Develop a Plan
If there are errors on your credit report, have the credit bureaus investigate and correct them. Set goals and time frames for future major credit endeavors.
Bankruptcy Today—Homeowner Tomorrow
If you recently filed bankruptcy or if you don’t have any open credit, start building credit as soon as possible. Try to obtain several new accounts or sources such a secured credit card, department store cards or being put on someone else’s account as an authorized user. The lower your starting credit scores, the more your need to have positive items reporting.
For secured cards remember the following:
- Never carry over balances (pay balances in full) as the interest rates are very high.
- Purchase one thing on credit that you would normally pay cash for (say for $20.00), and pay the bill as soon as it arrives. If paid in full during the grace period, typically between 21 to 30 days, no interest is charged. Follow this practice consistently and NEVER miss a payment.
Keep Older Accounts Open
If you already have credit open, keep your oldest accounts. Even if there were late payments in the past, pay them on time now. And remember, the older the account, the more it will help your credit.
Make Your Payments on Time
Pay Down Your Credit Card Balances
Target to have the total amount of outstanding revolving debt at 30% or less of the total available credit limits.
Once new positive sources are created, avoid all unnecessary inquiries. Don’t fill out any additional applications for credit.
For home purchase or refinance, old collections/judgments/unpaid taxes/unpaid child support must be dealt with. Look at the date of the item, compare to statute of limitations for that item, and plan a strategy to address each.