Taking Control of Your Credit Score

Recognizing the importance of your personal credit score is a major step in reaching your financial goals. There are many advantages to a good credit score, including the ability to qualify for mortgage or to secure car loan — both at more favorable rates. On the other hand, those who neglect their credit score may not have the same opportunities and might struggle to own a home.

Here are some strategies to help ensure you maintain a healthy credit score:

1. Pay Your Loans First
It’s easy to spend your paycheck on entertainment and food rather than first making payments on your loans. Even though it may be more difficult, you should always focus on paying your loans first. Remember that missed or late payments will hurt your credit score — and food, entertainment, insurance and utilities are not reported on your credit report unless they go into collections.

2. Avoid Maxing Out Your Credit Cards
Many people believe that it’s okay to have credit cards that are completely maxed out as long as they are able to make the minimum payment. The truth is creditors view a maxed out credit card as a sign that you are in too much debt. Your score will go down and creditors may deny. While this is a big negative, it is easy to fix if you have the cash to do it. Your score will increase immediately upon the fix.

3. Apply for Credit Only When Necessary
Just because you can qualify for a new credit card doesn’t mean you should get one. While a new credit card for buying “fun stuff” might sound great, it can actually hurt your credit score. Remember that each new application for credit will appear on your credit score. Some creditors might be concerned that you are relying too much on credit and that you have a cash-flow problem. It’s best to only apply for a new line of credit when you really need it and not just because you can. However, you should have at least two and keep that paid down to zero, or as close as you can.

4. Pay More Than the Minimum Payment
Unfortunately, many people make decisions of whether to use credit for a purchase based on the projected minimum payment. For example, even though they are making a credit-based purchase for $1000, they pay more close attention to the fact that the minimum payment is only $20 per month. They might rationalize that they can make that $20 payment easy enough without realizing that the interest will add up and will extend the time to pay-off to “forever.” This prolongs the payoff of your loan and ends up costing you much more than $1000. Instead, make a higher payment to pay off the loan as quickly as possible.

There are other ways you can use credit cards and other loans to actually improve your credit. These strategies can be important when you are trying to qualify for a home loan. To learn more about building a solid credit score, contact me for a free consultation. Together, we’ll discuss some things that will make a huge difference in helping you reach your goal of owning a home. I am available at 480-296-1905, or email me at deoncaddy@caddymortgage.com.

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