The following are a few Dos and Don’ts when it comes to rebuilding your credit:
1) Three months prior to securing your mortgage, DON’T apply for, close, or pay off any collections, charge-offs, loans, or other kinds of credit without speaking to your mortgage professional first. Any one of these actions, as innocent as they might seem, could seriously affect your credit score, adding significant costs to your mortgage should your score suddenly drop.
2) If you have any credit card accounts with excellent credit histories, DO use them – but use them strategically. Keep your balances below 30% of their limits for 3-6 months prior to entering into a loan transaction, and use them only for small purchases that you can easily pay off completely or carry very low balances. Remember, creditors like to see evidence of stability, so the goal is to keep the good reports coming month to month without falling into the same financial traps that led to credit challenges in the past.
3) If you don’t have a credit card, DO get a secured card immediately. This is a great way to rebuild or establish credit quickly. Because this account is secured by funds that you deposit (typically between $250 and $500) you’re not seen as a great risk to the card issuer because of your initial investment. Again, use this card strategically to build a strong credit history. Pay your bill on time every month and maintain a low balance. A few good resources for secured card are Industrial Bank and Public Savings Bank.
For some, opening a credit account with a co-signer could be a better alternative, but it’s important to note that both you and your co-signer are equally responsible for any activity on this type of account, good or bad, so this strategy could backfire in the end if you or your co-signer makes poor decisions. DON’T mistake “authorized user” for a co-signed account.
4) Finally, DO monitor your credit. If you’re not sure how to read or understand your report, ask for help.
