Many financial institutions such as banks and mortgage lenders report consumer financial information every billing cycle. After this credit bureaus such Equifax, TransUnion, and Experian update your credit report and score. According to the Fair Isaac Corporation, creator of the FICO score, 65% of your credit score is based on credit history and credit amount owed. By paying higher interest debt off first, the speed at which your credit score declines can increase. The following tips can effectively fix a bad credit score.
Rapid rescoring services
Rapid rescoring services are provided by credit agencies that work with financial institutions to facilitate lending. With documented proof such as bank statements or check copies, these credit agencies can also quickly facilitate credit improvement with error corrections and non-reported credit history.
Settle newer delinquencies first
Delinquent accounts stay on a credit report for up to 7 years, according to section 605 of the Fair Credit Reporting Act. Newer delinquencies have a greater impact on a credit score, according to Fair Isaac Corporation. This makes payments to these accounts more beneficial to a credit score.
If the delinquencies on your credit report are false, and you want to dispute them yourself, the U.S. Federal Trade Commission recommends obtaining your credit report from www.freeannualcreditreport.com and contacting both your creditors and the credit bureaus with a dispute letter.
Pay off your gym membership
Landlords and utility providers might not send credit information to the bureaus as fast as you would like them to. In other cases you may not be aware credit reporting is occurring. For example, a gym membership, wine club or magazine subscription may all report your credibility to Experian, TransUnion and/or Equifax. Contacting service or product providers to inquire if -- and when -- they report your credit to the bureaus, and paying these bills, could improve a bad credit score.
Request a credit limit increase
Requesting a credit limit increase can boost your credit score by lowering your debt-to-credit ratio, which is is a major component of credit scoring. If the request is approved, not using the extra credit and/or paying off your credit card so its balance is no more than 40% of your total available credit can help fix a bad credit score.
Open a new account
If a credit limit increase cannot be achieved, opening a new loan account can be the next best thing, and in some cases do more to help you. For example, opening a new checking account line of credit can both diversify your credit and lower your debt-to-credit ratio, allowing for potential greater benefits than an increase in your credit limit. But keep in mind that too many new accounts can negatively impact credit score.
Re-allocate assets and income
Funds acquired from selling unwanted or unused assets and cutting household expenses by 10-20% or more can fix a bad credit score if used to pay off debt. Depending on how high your debt is, this could reduce or eliminate your debt in a shorter amount of time than if equal payments are made on all the debt.
Are you considering a rent-to-own, or lease-option agreement as an alternative to renting while you save for a down payment? You may like the idea of trying before you buy, or you want to move into
your new home despite a poor credit rating, or inability to document your income and secure a mortgage.
Check your lease option agreements
Typically, when entering a rent-to-own arrangement, there are three sets of legal papers:
Lease Agreement – sets out the terms and length of the lease, and needs to comply with local legislation and the Rental Housing Act.
Sale Agreement – sets the purchase price and other conditions of sale and should be signed only by the seller.
Lease Option Agreement or Lease Purchase Agreement – With a Lease option, the buyer is guaranteed the option to buy at the end of the lease term; with a Lease Purchase, the buyer is obliged to buy.
Check all three of these contracts carefully before signing anything. Particularly be aware of the following common pitfalls:
Rent to Own Costs
Unlike a traditional rental agreement, a rent-to-own tenant is generally expected to take on some of the associated costs of ownership. This may mean you become liable for rates, taxes, general maintenance and insurance. Check carefully who is responsible for what.
Lease Option Fees and Rent premiums
A Lease Option Fee is typically between 1% and 3% of the agreed purchase price. Some or all of the rent premium and option fee will be set aside to put toward the down payment. Know what portion of these extra costs is building you equity in the property. Also be clear what happens to that money if you fail to complete the purchase. Often, if the buyer walks away or violates the agreement, the seller keeps both option fee and rent premiums.
Know the penalties for violating any clause in your rental agreement. A late payment for one month could mean you lose the equity credit, or it could be grounds for eviction. Similarly, landlords often have clauses enabling them to terminate the contract if the property is not maintained to standard.
The purchase price may be agreed prior to the rental agreement commencing, or assessed at a later date. You might want to negotiate a deal where the price is only altered if the market falls more than a set percentage, but are you prepared to pay an increased price if the market rises rapidly?
Are you sure you will be able to repair your credit or qualify for a mortgage before the end of the lease agreement? If not, you might be better off with a standard rental agreement and use the money saved to pay down debts and build up a lump sum to be used as a down payment later on.
Horror stories about unscrupulous landlords who charge high option fees and enforce voracious eviction policies are not hard to come by. Also, if the seller loses the house for any reason, such as in a divorce settlement, mortgage foreclosure or due to unexpected legal, medical or tax bills, you may find yourself not only losing your investment in the property, but homeless to boot. Run a credit check on the seller before entering any agreement, and beware any major changes to your landlord's financial standing throughout the rental period.
Finally, check lease options on residential property are legal in your state, as not all allow them.