I tell my clients that besides your family and friends, there is not much more important than good credit. Most people do not have enough cash on hand to purchase a commercial building, multifamily building, a home, a college education or even an automobile. If you are like most people then you need to be able to sell yourself as a good credit risk.
Let’s put ourselves in the shoes of the lender jumbo mortgage texas for a minute. If we have $1,000,000 to lend and there are three candidates who are each seeking a $1,000,000 loan from us, how would we go about deciding who to lend the money to? Our main purpose in lending money is to charge interest on the principal amount of the loan and to make sure our loan is paid back in full.
As we take a look at the three potential borrowers we see that borrower number 1 has bad credit. Their credit score is low due to a few collections and charge-offs and they show a history of years of late payments. Borrower number 2 doesn’t really have bad credit; in fact, they do not have any credit. How am I to know if they are going to repay me? They don’t have a history so I would be one of their first creditors. Do I want to take that risk? Borrower number 3 has a good credit score. It could be higher, but they have a really good history of making all of their payments on time and we can see that they have paid many prior creditors in full with no problems.
As a lender who would you lend to? It may seem like an exaggerated example, but lenders deal with these exact scenarios every day. Many banks have benchmarks or lending limits on the amount they will lend in any given quarter or year. They are looking for good credit risks; borrowers who have a good credit score and a strong credit history.
So how can we prepare ourselves to be good credit risks? Are there a few things we can do to increase our credit scores and improve our credit history? Yes! Here are a few general tips to get started. You can contact your personal financial planner for more ideas once you have taken these steps:
> Check your credit for mistakes. Upon careful examination of your credit report, it is not uncommon to find mistakes on your credit report. To remove them you will typically need to contact the credit bureau in writing, show proof of the mistake and then they can usually remove it from your credit report. This is one way to monitor your credit regularly
> If you have prior late payments, charge-offs, foreclosures, etc. make sure each of them are taken care of and finalized. Try calling the three bureaus to get old derogatory items removed. Some items have to be there for a certain period of time, but many times there are some items that can be removed
> Decrease your credit balance to credit limit ratio. There are two ways to do this. You can either pay down some of your debt or request an increase in your lending limits. If my credit balance is $500 and my credit limit is $600, I am utilizing approximately 83% of my lending capacity. However, if my credit balance is $500 and I am able to raise my credit limit to $1,000 I have now dropped my ratio to 50% and I should see my credit score increase. NOTE: If you do raise your credit limit you will need to have the self-control to not charge up more on your credit. This would defeat the purpose
> New credit accounts decrease your credit score because there is not a long credit history. Do not keep opening new accounts. Find a couple or a few that work for you and build a long-term credit relationship. Use them and pay them off. This will help build good credit