Mend Your Credit

The role that credit scores play in today's society is still a mystery to a lot of people and this lasts until they apply for a loan. Setting aside the income and the appraisal because these subjects have received ample coverage in this blog and other sources, we will focus on credit alone.

What Lenders are looking for.
With the tightening of lending guidelines following the tsunami of foreclosures, lenders are requiring higher and higher scores. Good credit scores are now 720 or better whereas 620 was good enough just a year ago. Achieving those scores requires due diligence from each borrower.

Credit reports, if they are correct, should reflect the patterns of dealing with financial obligations. Credit reports list all the creditors along with the high and current balances, the monthly payment, the length and type of the loan contract and the payment history.

The analysis of the performance of these individual accounts is sanctioned by a credit score. There are three major private credit reporting agencies (Transunion, Experian and Equifax)that are responsible for issuing them. These agencies are private corporations hired by the lenders not the individual customers. The data used to compile these scores are supplied by the those who employ these agencies.

These above details are provided here for the simple purpose of highlighting the nature of these reports: they are only as good as the data that support them; incorrect data will yield incorrect reports. Due to the critical role that these reports increasingly play in lending, each individual owes it to himself to check and correct this information immediately when errors are found.

The starting point is the free annual credit report that each of us is entitled to. Log on to http://www.annualcreditreport.com/ Examine each trade line and correct any errors found. This simple exercise can save you a lot of money through low interest rates and better loan terms.

Some tips to improve your credit scores,
1. Pay all bills on time all the time,
2. Avoid opening new credit lines frequently,
3. Report all errors (with proof) to the bureaus and demand corrections or deletions,
4. Keep all balances at 25% or less of the total authorized credit line,
5. Avoid inquiries into your credit,
6. Do not co-sign loans for other people.