If you managed to survive the Great Recession of 2008-2012 relatively unscathed financially, then you might be holding on to a good credit score.
And that’s an important factor in the next few years as more Americans rebound from the crisis and look for lending opportunities for a new home, car or business.
Banks have tightened their lending requirements in recent years, and unless you have good credit, you may not be able to secure any kind of loan.
This goes for refinancing, too.
A few years ago we built our dream home and during the financing process, our bank request our credit score.
Since then we’ve refinanced twice and each time our banker had to request our credit score.
What’s good credit worth today?
Well, to obtain any kind of loan to buy a house, good credit is the absolute key to finding a mortgage today.
Bankrate notes that unless your credit score is 620 or higher, you’d best forget about trying to find lending right now.
It just won’t happen.
When to Buy, How to Buy
Most lenders are seeking mortgage applicants to have a minimum credit score of 680 to comply with new government lending guidelines administered by Freddie Mac and Fannie Mae. Some applicants with credit scores as low as 620 are finding some FHA loans, but most lenders are only accepting credit scores higher than 620.
Buying a new car is no different right now. If you’re looking to upgrade your wheels, you’ll need good credit to apply for car loans. U.S. auto sales were increasingly higher this summer than over the past few years. Forbes reported that U.S automakers saw sales shoot up nearly 20 percent in August, which was the best new car sales month since early 2008. This was a direct result of three big factors: bottled-up demand for new models from car buyers, zero-percent financing offered to buyers with excellent credit, and a better selection of gas-friendly cars to help spur buying, in a year rife with even higher gas prices.
So if good credit is the key to upgrading your home or car opportunities, it’s best to figure out a way to start increasing your credit score. Using a few tips for bettering your credit score means greater financial flexibility in the coming years.
Pay off Low Balance Cards First
This tip to pay off your low balance credit cards first comes from self-proclaimed radio and TV financial guru Dave Ramsey, and it is not without controversy. Ramsey suggests that by paying off your lowest credit card balances first, and zeroing them out, you will achieve a matter of satisfaction that will continue to spur you on to paring down the rest of your debt. I know many people that used Lending Club or another P2P lender to get their rates down and then paid off the new loan.
Know your Credit History
You are entitled to a free credit report every year. You should definitely take advantage of this opportunity. A quick visit to freecreditreport.com will guide you to getting a copy of your report from one of the tree main credit reporting agencies. You should also check for any possible errors between your online identity and credit score. Sign up for an online identity evaluation at Lifelock to assess if your accounts are in line with what credit reporting agencies are finding.
In 2011, identity fraud increased by 13 percent, with more than 11.6 million adults in the U.S. became a victim of identity fraud. The average cost identified with identity theft comes to about $5,000, and some reports indicate that it takes a year or more for identity theft victims to even notice that identity elements have been stolen. Using a credit monitoring and identity theft service like Lifelock can help prevent any out of pocket financial expenses. Being notified soon after identity theft happens enables users to stop it before it moves into higher amounts.
Automate Your Payments
Ramit Sethi, best-selling author of “I Will Teach You How to Get Rich,” offers credit-saving tips for anyone who’s interested in reducing debt and becoming more financially free. He reveals that 35 percent of your credit score (the largest portion) reflects your payment history. So if your history reflects late or missing payments, it can cause your credit score to drop 100 points, increase your APR on credit card bills and add a lot more money to your car or house payments.
So his solid advice is to automate your credit card payments. If you forget to write a check or make a one-time online payment, it can affect your credit score in much more damaging ways. Of course, this strategy doesn’t take into account deeper issues like if you’ve lost a job or your home, and you’re simply unable to make a payment.
Knowing how to reduce credit card payments and increase your credit score can make a world of difference in your life when it comes to applying for loans for new cars, homes or more. Knowing your fiscal responsibility and how to overcome the liabilities will help your future grow more stable.