As of January 28, 2015 the average interest rate on a fixed 30 year mortgage is 3.80% and on a fixed 15 year mortgage, the rate is 3.13%. No wonder consumers are shopping for mortgages, the interest rates are at an all-time low. But what if your credit score is low? A bad credit history tells banks that you’re a risky person to lend to.
There is something you can do. I call it DIY credit improvement (do-it-yourself credit improvement). Most credit repair services charge fees similar to a mortgage payment. You can improve your credit report legally, but it will take a conscious effort; anything a credit repair company can do legally, you can also do for yourself.
What can the average person do to improve their credit? For starters pay your bills on time; if possible pay your bills 10 -14 days before the due date. Paying your bills on or near the due date keeps your interest rates high, which means you pay more on your bills in the long run. Keep in mind that banks do not like to see unnecessary credit. So keep your credit cards to a minimum, you should not have a credit card for every store in the mall. The next thing on your to-do-list is: SAVE. If you do not have a savings account, now is the time to get one. Banks like to see that you save on a regular basis.
The next step: increase your credit score. Now is the perfect time of year to get started, everyone is looking forward to their income tax refund. Pay attention, because this works. Open a savings account with a national bank, such as Chase, Bank of America, and HSBC for example. Deposit $1,000.00 in your new savings account. Wait three months, and then apply for a $1,000.00 loan. With a low credit score, you will most likely get turned down for the loan. When they turn you down, ask the loan officer to secure the loan with the $1,000.00 you have saved in their bank. You will get your loan. If they still say no, explain that you simply want to improve your credit. They will most likely give you the loan. The catch is you will not be able to touch the $1,000.00 that you have in your savings account, remember you used those funds to secure the loan.
These next few steps are very important; do not deviate away from these steps. Pay your monthly loan payment two weeks before the due date. Do this every month for six months. On the seventh month, pay the loan off. Where will you obtain the money to make your monthly payments? With the $1,000.00 loan that your (national) bank approved you for.
If your income tax return is over $3,000.00, apply for loans simultaneously with three national banks (Chase, Bank of America, Citibank, HSBC, for example). If your income tax return is less than $3,000.00, not to worry, you can complete the process, one bank at a time. After you have paid off the first loan, move on to bank # 2. After you have paid off the second loan, move on to bank number #3.
Have you ever notice when completing a loan or credit application, 3 financial references are always required? What is better than three national bank references? It does not get any better than that. Twenty-one months (less than two years) to A-1 credit score. Now, it is time to purchase that new home.
Barbara Peterson is owner of CBC Associates collection agency and the founder of Peterson
Sewing School. She is a Certified FDIC Money Smart Instructor as well as a Certified FDIC
Train the Trainer Instructor. Barbara also has over 25 years credit and collection experience.