Preparing Your Credit Before a Big Loan
This is a guest post by Mr Credit Card from www.askmrcreditcard.com. Mr Credit Card reviews credit cards and you can apply for a credit card at his site.
If you are looking to take a huge loan in the future (ie, anywhere from 6 months to 2 years), it is best that you start thinking about making sure that your credit score is in pristine condition so that you can get the best possible rates for your loan (either a mortgage or an auto loan presumably). There are various steps that you have to take to make sure your score is in tip top condition.
1. Check Your Credit Report - The first thing that you can do is to actually check your credit score. You can have a free copy of your credit report from each credit bureau once a year. The place to get it is actually www.annualreport.com. Note that you will not see your score, but only your report.
Verify that the information is correct - Scan through your report and make sure that the information on the credit report is correct. If there is incorrect information, you can dispute via a letter or through the bureaus website and they have 30 days to correct it. Any inaccurate negative information that is removed can help boost your credit score.
Improve Your Credit Utilization Ratio - The credit utilization ratio is a very important ratio and improving it will help your credit score. If you have low ratio (30% or less is good). But if you have high credit card debt, then you should consider getting a plan to reduce your debt.
There have been various methods that have been touted in the financial press. Dave Ramsey’s snowball method is a widely accepted way to kick start your debt reduction. But you can either allocate extra money to pay off your credit card with the highest debt first or the one with the highest interest. Once the first card is paid off, you can then apply the amount that you would have paid for the first card to the second card. Wash rinse and repeat and before you know it, you would have had your debt paid down. This will help your score tremendously.
Another tool to help your debt reduction efforts is to transfer a balance from a high rate card to one with preferably 0% interest. The best balance transfer credit cards these days offer 0% for six months.
What if you have no credit - Well, if you have no credit, you have to start to build a credit history because otherwise, you would end up paying a higher interest rate. One way to do it is to get a credit card. But if you have no credit history, getting a regular credit card may be a bit difficult. The solution is to actually look for secured credit card offers. Get one and start building a credit history.
If you happen to be a student, then consider getting a college student credit card.
Make sure you do not get out of control. Just use the card and pay off your balance in full. Before you know it, you will have a good credit history which you can use to your advantage.