Bad credit CAN get better, and good credit can become GREAT credit!
Step 1- Get Your Free Credit Report Annually
Background: New legislation makes it mandatory for the credit bureaus to provide you with one free credit report per year. Pulling your own report avoids having an Inquiry placed on your file, which, when they accumulate, can damage your scores.
Your Extra Credit Assignment: Get your credit report at www.annualcreditreport.com, which is completely free or www.myfico.com which charges a fee, but includes the same FICO® scores that your mortgage lender will use. Most any other free credit scores you might find on the web are not true Fair, Isaac, & Co. (FICO®) scores, which are the only scores that matter.
Step 2- Obtain Revolving Credit (if necessary)
Background: Getting your credit history started is obviously critical for those without one. A good place to start is with a secured credit card. But not just any card. It is CRITICAL to make sure that the secured card you get is one that reports your account to all three credit bureaus(TransUnion, Experian, and Equifax).
Your Extra Credit Assignment: Open a secured credit card if you do not have credit. Ask your bank or credit union if their secured card reports to all three bureaus. If you cannot find one local, visit American Pacific Bank (www.apbank.com) and sign up for their secured card, as it reports to all three credit bureaus as an unsecured tradeline.
Step 3- Check your Credit Report for Errors; ANY Errors
Background: According to the Public Interest Research Group (PIRG), 79% of credit reports have errors, and 25% of these are serious enough to cause a loan denial. No statistics are given for how many of those other 54% were serious enough to affect the rate paid by a borrower, even if it did not cause a denial. So, odds are, you will find errors in your credit report if you look closely. Something as simple as an installment loan being improperly classified as a revolving line of credit can cost you 20 points or more on your scores.
Your Extra Credit Assignment: Look closely. For example; Installment loan coded as revolving credit, balances that you know have been paid off/paid down, duplicate accounts, accounts that are not yours, late payments, collections, chargeoffs, other derogatory information that may be incorrect. Even dates of last activity of old accounts.
Step 4- Check Your Ratios
Background: Total ratio and individual ratios. The FICO scoring models are known to place high value on credit utilization ratios. Both your total credit utilized to total available credit ratio and each individual revolving account ratio should be below 50% utilization; better still, below 30%. Less is definitely more here.
Your Extra Credit Assignment: Examine both your total and each individual balance ratio. Stay below 50% at worst, 30% is much better; EACH account, not just the total. The obvious strategy if balances are too high, is to pay them down. And that always works; no question. There are a couple of less obvious solutions, though. First is balance transfers from high ratio cards to low ratio cards. Silly as it sounds, that can, and will have a positive impact on your scores. Second, If you have a good payment history with a particular credit card account, you can ask the card issuer to increase your credit limit. Ask them if they will do it without pulling your credit, though, as so you can avoid any unnecessary credit inquiries, which can lower your scores as much as 3-5 ponts EACH.
Step 5- Look for Missing Information
Background: Some credit cards do not report limits, hurt ratios, Credit limits are always round numbers. Sometimes indicates an instance of going over the limit, sometimes it is just the maximum balance ever charged on the card and the creditor is not reporting the limit.
Your Extra Credit Assignment: Look at each of your revolving credit limits on your credit report. Look for odd numbers. Ask your card issuer to report the correct limit. If you are applying for a mortgage soon, ask your Extra Credit professional to perform what is known as a Rapid Re-Score on your credit, forcing the new correct info into your credit profile.
Step 6- For Those Recovering From A Bankruptcy.
Background: If you have had a Chapter 7 Bankruptcy. you may be continuing to be punished by the creditors. Many creditors will continue to report a current Date of Last Activity. Not only is this incorrect, it is illegal. We'll just assume it's inadvertent on the part of the creditors, but it happens an awful lot. Bottom line: This can kill your scores. Having each of your Included in Bankruptcy tradelines reporting correctly can make as much as 100 points in your credit scores difference almost overnight.
Your Extra Credit Assignment: Examine each credit tradeline to make sure that date of last activity is no later than the date of filing, that the balance is zero, and the status is listed as Included In Bankruptcy.
Step 7- Free Professional Credit Score Analysis
Background: Your Extra Credit Advisor has State-of-the-art credit analysis tools available that can help map out a clear concise roadmap for your credit optimization process. These tools provide you with a step-by-step guide to maximizing your credit score, as well as a precise projection of the effect these steps will have. Your ExtraCredit Advisor can utilize additional tools such as instant payoffs and rapid re-score to have these changes reflected in your credit score in as little as 72 hours.
Your Extra Credit Assignment: Gather all supporting information to give to your Extra Credit Advisor, then let them get to work helping you to Improve Your Credit and Improve Your Mortgage.
Mortgage regulations have changed significantly over the last few years, making your options wider than ever. Subtle changes in the way you approach mortgage shopping, and even small differences in the way you structure your mortgage, coupled with a personalized Mortgage Optimization Strategy to get the most from your credit, can save you literally thousands of dollars and years of expense.
Get the Right Information - Whether you are about to buy your first home, or are planning to make a move to your next home, it is critical that you be informed about the factors involved.
Everyday people turn to a mortgage lender to help them get a home loan, but because many of them do not know what questions, if any, to ask, they often make incorrect choices. By taking these few minutes to acquaint yourself with the 7 Easy Steps To Getting The Best Rate (and Lowest Payment) On Your Next Mortgage you can reduce or eliminate the chances of making a critical error and save thousands on your mortgage.

About The Author

Tom Armstrong is passionate about credit. He served as the Founding Moderator at www.ArtOfCredit.com, as well as www.CreditBoards.com, the two largest credit discussion boards on the internet. He is a mortgage broker originating home loans across the nation. For a free credit checkup prior to your next purchase or refinance, visit www.ExtraCredit.net.
tarmstrong@extracredit.net