Recent economic troubles have taken a toll on the credit scores of many Americans with an estimated 50 million consumer scores dropping significantly in the last few year. The impact that these lower scores have on the housing market cannot be denied. The latest statistics on credit scores by FICO found that scores plunged more than 20 points between 2008 and 2009, with 21 million of those losing more than 50 points. In the same time period, standards for loan applications were tightened, higher scores were necessary for hopeful homeowners and interest rates rose.
Consumers hoping to buy their first home, move to a newer one or refinance their current mortgage will need to raise their score to be approved and get the best terms. FICO scores range from 300 to 850. Current estimates are that a score of 760 or higher is needed to secure a government Fannie Mae or Freddie Mac loan. Compare this to just five years ago when a score of 620 was adequate. Even those being insured by FHA will need a score above 700 in today’s market.
With FICO scores being dynamic or constantly in flux with the actions of the consumer, recovering from a drop will take some time. Here are four things you can do to begin raising your credit score:
Review your credit report
The data contained in your report is used to calculate your score; if there are errors or discrepancies your score will be negatively impacted. Contact the credit reporting agency and file a dispute to have the error corrected. You can check your credit report for free every twelve months at annualcreditreport.com.
Reduce the amount of debt you owe
Be willing to admit to what you owe and write up a workable repayment plan. Always pay more than the minimum due each month and work down the accounts with the highest interest rates first. Avoid using credit cards until you bring your total debt to a better manageable level.
Pay your bills on time
Late and missed payments have a major negative impact on your FICO score. Take advantage of payment reminders and automatic payment options.
Don’t open or close credit accounts
Too many new account applications may imply financial trouble in the eyes of the credit reporting agencies. Older accounts are a positive factor, indicating responsible account management. Simply manage your current accounts well and you’ll see your credit score rise.
What things have you done to increase your credit score?