A fall fire in the back yard reminded me of an old phrase that can apply to credit ratings, which is always a hot topic in the mortgage industry. No, burning your bills is not the fire I’m talking about! Though if that’s the first thing you thought of, this article should be worth a read. Being aware and educated about credit can stop the burning of any future chances of getting approved for a mortgage.
Ensure your credit report is not “too clean”
Many people are under the impression that old debt on their credit report is bad, which it isn’t. As soon as they pay off balances owing, some people will phone the creditors trying to get the account closed and removed from their credit report, or ask for a decrease in their credit limit. Good debt that you’ve handled well and paid as agreed is good for your credit. The longer your history of good debt is, the better it is for your score.
One of the ways to improve your credit score is to leave old “good debt” on your credit report as long as possible. This is also a good reason not to close old accounts where you’ve had a solid repayment record.
Deal with any potential credit issues sooner than later
Collections stay on your credit report for about 7 years, paid or not paid. If you can, get your debt under control before it shows up as a collection on your credit report. There are a few simple steps you can take to prevent your credit score from dropping drastically;
- Make your minimum payments on time, all the time
- Pay down the balance to below the available limit and NEVER go above your credit limit.
- Pay off the full balance owing every month if you can
- Ensure your balance owing doesn’t go higher than 80% of the credit limit.
- Pay off any past-due amounts as soon as possible
Communicate with your creditors
If you’re struggling to pay your bills, don’t wait until the calls start coming in to deal with your debt. Call your creditors before you start missing payments to see if you can make arrangements that are affordable for you and acceptable with your debt holder. Ignoring the problem does not make it disappear, especially when it comes to credit.
Be patient and persistent
Patience isn’t a factor that’s used to calculate your credit score, but it’s something you need to have while you’re repairing your credit. Your credit wasn’t damaged overnight, so don’t expect it to improve in that amount of time. Continue paying your debts on time each month and over time you will see your credit score improve.
Correct Inaccuracies on your credit report
If your credit score is declining due to an error on your credit report, get it corrected as soon as possible. I strongly encourage you to monitor your credit report regularly to get ahead of any inaccuracies showing up as errors on your report. You can not only order your report yourself at a small cost, you can also contact the credit reporting agencies directly to find out what paperwork you need to provide in order to fix the issue. Follow up to make sure your report has been updated. Also keep your supporting documents on hand in case it hasn’t and you still have more work to do.
Avoid Excessive Credit Seeking
Be cautious about applying for too much credit as multiple inquiries from different types of companies can reduce your credit score. If you are looking for credit, try to keep the companies pulling your credit report to a minimum to keep your credit score in great shape.
If burning your bills means the debts will disappear, I’m sure everyone would find a fire pit in a hurry. Unfortunately that is not the case. Managing your credit is not an easy thing to do, especially if you have experienced some credit problems at any point in your life. If you have questions or concerns, I suggest you approach a credit professional who can guide you in developing an action plan that will help you to achieve any financial goals you may have.