Our parents teach us many things, how to tie our shoe laces, how to ride bikes etc. but one very important thing they sometimes do not teach us is about having and maintaining good credit. In some homes, good financial responsibilities maybe taboo subjects or just not spoken about.

According to the Mortgage Bankers Association of America, 1 in 200 homes was foreclosed on in 2008. With foreclosure rates increasing by double figures annually, good fiscal management should be addressed before and after a home purchase. This first article is focused on understanding credit and your financial picture.  This will help you make the right decisions before and after a home purchase.

Know what is on your credit report.

First thing to do is get a copy of your credit report.  A copy of your credit report can help you to make certain that there are no discrepancies or problems in your credit history.   A credit report summarizes your financial picture. It shows your total debt, your monthly responsibility and your bill-paying history.  This data is used to generate something called your FICO score, named after the firm that pioneered this work, Fair, Isaac and Company.

Everyone from your landlord, employer, insurers and lenders use your FICO score to predict your credit worthiness and honesty. This credit worthiness is what drives your FICO score.  The higher your FICO score the lower the interest rate you will be charged on loans. A low FICO score can cost you to get charged higher rates, as well as get rejected for a loan.  Have no despair if your FICO is low. There are things you can do to raise the score.

The range for FICO scores are 300 to 850, and the higher the score the better your chances to get request for credit approved.

It’s a good idea to review your credit report once a year, and before you apply for a loan. This can be done by contacting the three reporting companies:
Equifax at 800-685-1111         (www.equifax.com)
Experian at 888-397-3742       (www.experian.com)
Trans Union at 800-888-4213 (www.transunion.com)

Improving Your FICO® Score (Tips courtesy of www.myfico.com)

We have all seen the signs on the side of the street “Free Credit Repair! Call Now!”  We have all wondered if they were legitimate establishments or not.  Word of caution before you call one of these companies, and that is, there are NO QUICK FIXES TO CREDIT.  Repairing your credit or improving your score is a slow process that you have to commit to.  Your best option is the start to handle credit wisely and continue to do so over time. Here are a few tips that can help you raise your score.

Payment History Tips

1. Pay your bills on time. Delinquent payments and collections can have a major negative impact on your score. If you have missed payments, get current and stay current. The longer you pay your bills on time, the better your score.
2. Be aware that paying off a collection account will not remove it from your credit report. It will stay on your report for seven years.
3. If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor. This won’t improve your score immediately, but if you can begin to manage your credit and pay on time, your score will get better over time.

Amounts Owed Tips

1. Keep balances low on credit cards and other “revolving credit”. Experts recommend you keep balances under 30-40% of the available credit total. High outstanding debt can affect a score and reflect negatively. Pay down high balances on all “revolving credit” accounts. Simply paying down balances to under 30% may increase your score by 50 to 100 points.
2. Pay off debt rather than moving it around. Moving it around does not eliminate it. The most effective way to improve your score in this area is by paying down your revolving credit. In fact, owing the same amount but having fewer open accounts may lower your score.
3. Don’t close unused credit cards as a short-term strategy to raise your score.
4. Don’t open a number of new credit cards that you don’t need, just to increase your available credit. This approach could backfire and actually lower score.

Length of Credit History Tips

1. If you have been managing credit for a short time, don’t open a lot of new accounts too rapidly. New accounts will lower your average account age, which will have a larger effect on your score if you don’t have a lot of other credit information. Also, rapid account buildup can look risky if you are a new credit user.

New Credit Tips

1. Do your rate shopping for a given loan within a focused period of time.  FICO® scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur.
2. Re-establish your credit history if you have had problems.  Opening new accounts responsibly and paying them off on time will raise your score in the long term.
3. Note that it’s OK to request and check your own credit report.  This won’t affect your score, as long as you order your credit report directly from the credit reporting agency or through an organization authorized to provide credit reports to consumers.

Types of Credit Use Tips

1. Apply for and open new credit accounts only as needed. Don’t open accounts just to have a better credit mix - it probably won’t raise your score.
2. Have credit cards - but manage them responsibly.  In general, having credit cards and installment loans (and paying timely payments) will raise your score. Someone with no credit cards, for example, tends to be higher risk than someone who has managed credit cards responsibly.
3. Note that closing an account doesn’t make it go away. A closed account will still show up on your credit report, and may be considered by the score.

I hope these types bring you closer to your dreams.