Amid the COVID-19 crisis, the Federal Housing Administration recently tightened the criteria for borrowing money - making your credit score more important than ever. Even if you're not the poster child for financial health, there are some steps you can take to boost your score.
Pay On Time
Credit scores can be improved over the long term by making sure that all payments are made on time or never 30 days late, said Bob Kalagher, president of Ross Mortgage Company.
"Once you go 30 days past due it will be reported to the credit bureaus and it will have a negative effect on your scores," Kalagher said.
Also, don’t ignore medical, utility or phone bills.
"While most don’t report payment history to the bureaus, they will report it if you have an unpaid balance that's put into collection status. All of these will be a drag on your score."
Pay Off Debt
The quickest way to improve scores is to make sure that your balance doesn’t exceed 50% of the limit on credit cards you use, Kalagher said.
Social distancing may be the perfect time to do that.
"Being quarantined has allowed myself to save money, I’m assuming most Americans are spending less," said Kazantzis Real Estate Agent Jennifer Lehto. "You may even want to consider using your stimulus check to pay off some debt."
Kalagher also suggested avoiding credit inquiries as too many can pull scores down.
"If you do open up a new major credit card or a store credit card, don’t close it for a least one year," he said.
Opening a new card to get a discount at the time of purchase and then paying off and closing the card quickly will actually hurt your scores.
"Paying it off is fine but don’t close it until you've had it open more than a year," Kalagher said
Improve Bad Credit
If you have limited credit, bad credit, or no credit at all, start by getting a secured credit card from a local bank or credit union. Never let your balance exceed 50% of the limit.
"Charge a couple of small items during the month and pay it off when you get the bill," Kalagher said. "It will probably take a year but once you have a year of timely payments your scores will start to improve."
A Warning About Forbearance
There's been a lot of talk in the news lately about forbearance on mortgage payments - which is a temporary postponement in payments. Here's what you need to know before you consider requesting a forbearance:
While you’re being told that you shouldn’t be reported late if you go into forbearance, there will be companies that will report you late, because no one anticipated a worldwide pandemic. Kalagher said it will then be your responsibility to petition to have those lates removed from your credit report.
If you are able to receive a forbearance, that will be recorded on your credit report and will most likely affect your credit score. This could also affect credit card applications, auto loans, and future mortgage loans.
The moral of the story is simple.
"If you have the ability to make your payments, make them," Kalagher said. "Forbearance will almost certainly affect your credit score and ability to borrow in the future. If you have any questions, you can always reach out to us at Ross Mortgage."