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from Sept 2007 issue of Houston Real Estate Experts - FREE subscription

How To Improve Credit Scores & Repair Damaged Credit

by Teri Treadway


Since 1980, the three main credit bureaus - Experian, TransUnion, and Equifax - have each used a scoring method to rate the risk in lending to each individual. The most common is the Fair Isaac and Company, generally referred to as FICO™ score which ranges from 300 to 900. The higher the credit score, the more likely you are to receive a favorable interest rate, because the lender sees a lower risk of you defaulting on your loan.

Understanding how to protect yourself and structure your credit will allow you to receive better interest rates and in turn pay less for the items you purchase through financing. Lenders use the actual middle credit score (not the average) when qualifying borrowers and like to see a score of 620 or better to offer competitive rates.

Improving Your Credit.

  1. Focus on late payments.
    If you have current overdue payments, call that company and ask to arrange a schedule to help get you up to date. BEWARE of credit counseling services, as they can affect your credit as negatively as a bankruptcy. Try to work out payment schedules on your own. Some companies will agree to stop charging you interest or even lower the amount you have left to pay off. Agreeing to either of these may have a negative impact on your score, but depending on your situation it might be better for you in the long run.
    Please note: if you have had a bankruptcy in the last seven years or have worked with a credit counselor, it does not automatically mean you will not be able to get a mortgage loan.
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  2. Maintain long-term relationships with the companies
    with whom you have developed credit. The longer your credit history the better. Do not continue to switch credit cards. Work with companies you like and try to keep the balances on those cards less than 65 percent of the total limit. Do not have too many accounts open at one time; too many sources of credit also has an adverse effect on your credit score.


  3. Create a budget and commit to stick to it.
    This is the best way to help you manage your bills and pay off debt. To start paying off large debt, first determine how much money is needed each month for essentials - rent, food, all the minimum amounts due on accounts and other monthly bills. Then settle on an amount you can spare to apply as an extra payment to the bill with the lowest balance. Continue to pay the minimums on your other accounts, but each month take that extra payment plus the minimum payment due toward the selected bill and continue this process until it is paid off.
    Next, take what was the minimum payment on the bill you just paid, plus the agreed extra plus the minimum of the bill that has the next lowest balance and apply the money to that bill until it is paid off. Repeat this for each bill. You will pay your debt down more quickly when you have a manageable plan in place. The stress of reducing your debt will also decrease if you look at it as "one bill at a time" rather than trying to pay all at once.

Teri Treadway, loan officer

Teri Treadway of Cornerstone Mortgage specializes in financing real estate projects for investors and homebuyers. Her expertise is based on many years of experience in the mortgage business and superb understanding of local market. You can reach Teri at (832) 379-0600 or or by email.