If you are planning to obtain a construction loan, your credit score is going to play an important part. Knowing how to optimize your credit score is invaluable.
First let's discuss a few concepts that credit agencies use to determine your score:
Dates: Every credit line item has a number of dates associated with it, and they are:
Date Opened (the date the account was originally opened).
Date Reported (the last date the account was updated).
Date Closed
Date Last Late
Balances: Your credit report will also show several balances, consisting of:
High Balance (the highest credit limited granted under the account.
Present Balance (the current balance of the account.)
Past Due amount (the unpaid amount on a line that is late.)
Now apply the following rules:
Only pay off outstanding collection accounts if it has an "original date" within the last two years or if the lender or collection agency is keeping the report updated. As bad as it sounds, you should check all the dates and if they are older than two years, ignore them. Surprisingly, paying off an item older than two years will actually hurt your credit score.
Pay as much debt off as possible. I know - easier said than done, right? Just remember, the goal should be to pay down revolving accounts to under 50% of the maximum credit line. For example, if your co-borrower has a card with only 5% or so against it, then borrow on that card to up to 30% and use the money to pay down one of your high balance cards. It is important to pay attention to the total credit line as well as the total debt. Having 3 cards of zero balance with credit limits of $300 each is no good if you have one $3500 limit card with a $2500 balance.
Do not pay off and close revolving accounts. Closing a revolving account has an immediate negative effect on your credit rating.
Try to get your credit card companies to raise your credit limit. This will bring the ration of outstanding debt to credit limit down.
Don't buy a car! Nothing brings down a credit score more dramatically than a new car loan. A fixed term loan will have a negative effect on your credit score for up to 6 months. The negative effect diminishes with every passing month. After 6 months, providing payments have been made in a timely fashion, the loan begins to affect your score positively.
Contact all three credit reporting agencies and get all inaccurate information removed.
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