- Information on military relocation and community information for military bases

How to protect and improve a credit rating.

While we will try to keep this lighthearted, your credit rating is probably the most important factor in a smooth relocation. The first step to protecting and improving your credit rating is to obtain a copy of your own credit report and search for any common errors. The reason we harp on this so much is that it is important that you clear up any problems on your credit report before you actually need to borrow any money as it can take 30 days to make the corrections. Because they see how inaccurate these reports are all of the time, mortgage brokers will usually give you a chance to dispute your credit report. (Many apartment complex managers will just turn you down cold.) However, there will be more than enough hassles in changing duty stations without waiting a month on this simple procedure.

Unlike days of old, you do not just have a credit “rating” -- you now also have a credit “score” based on various rating criteria. Credit scoring has simplified the process of making a loan, but like everything with technology it also has some glitches. The tips given below will help you avoid accidentally lowering your credit scores. If you have a 660 to an 800, then don’t worry. The higher the score in this range, the more room you have to negotiate the loan. From 620 to 660, you may have to shop around for a lender, but you should be able to borrow the money from someone. Below a 620 and you had better have a good story (temporary loss of job, unusually high bills, loan co-signee didn’t pay their share etc.) or be able to find some errors on your credit report. Common errors include accounts of people with the same name on your report, as well as errors in reporting by credit grantors.

Above all else: Don’t mess with the Tax-Man! The IRS gets paid first in the event of bankruptcy, etc. Even if the rest of your credit is perfect, lenders are not going to loan you money for the home or car of your dreams just to see the IRS sell it the next month for unpaid taxes. Bankers don’t mess with the IRS and neither should you.

General credit scoring tips include:

1. Pay your bills on time. Seems easy enough, but this is the single most important factor in your credit rating. If you have to short a bill or two, first short non-credit items (utility bills, medical bills, etc.) then short the revolving (usually credit card ) accounts. The reason for this is that loan officers in the future will see shorting house or car payments as a sign that you are not willing to protect those assets from being repossessed. While that might seem silly to you (especially if those assets weren’t repossessed), this is the way they think-- and you have to borrow the money from them. Also, many loan officers’ job security depends on how delinquent their total account portfolios are. Thus their attitude becomes: Why risk a good-paying job by loaning money to someone with a history of delinquent house payments?

2. Pay off credit cards slowly. This seems illogical but is especially true if you have been late in paying the monthly fees. If you didn’t pay one card in March and in April transferred the balance to a new card, your credit report may read that you owe zero dollars and you are past due in paying it! A better strategy is to catch up, pay the minimum balance for one or two months, and then pay it off.

3. The longer the credit report, the better. Longer in time that is. If you have had good credit for twenty years, your credit scores will be better than someone with a similar profile for only two years. No surprise there.

4. Don’t Max Out! The credit bureaus assign lower scores to people who max out a credit card. While you might think that maxing out that low-interest card is a good idea, you might be better served by putting 10, 20, or even 30 percent on a slightly higher interest rate card (better from a credit score standpoint anyway).

5. Get your own copy of your credit report. When you shop around for the best apartment, mortgage or car loan (or credit card for that matter) each firm requests a copy of your credit report. These requests stay on your credit report for six months usually. The more you shop around, the more the credit bureau’s computers think you are trying to max out your borrowing ability and will assign you a lower score as a result. This is true whether you borrow any money or not. A better approach is to obtain a copy of your own report and show it to whatever lenders/creditors you deal with. It should be good for six months. When you find a lender you want to obtain the loan from, they may run a new credit check (you may have to pay for this) to ensure that nothing has changed. This method will protect your score and also keeps each lender after the first from seeing who his competitors are!

PS: We recommend obtaining the three-in-one merged report since this is similar to the mortgage report used by mortgage and home-equity lenders.

6. A mix is best. You will improve your score if you have both revolving and installment loans as well as secured and unsecured loans. So if you have an unsecured credit card, a secured bank loan (meaning money in an account pledged to pay off the loan), and a house or car loan that you are keeping up with the payments on, then you should have a better credit score than if you don’t have one of these types. Frankly, this is the least important aspect to your score, but it is a factor.

7. Close old accounts. A mix of credit may be best, but the information stays there for at least seven years. Once you have a copy of your own credit report, you should contact each lender that you have paid off and request they close that account. A new lender will look at how much credit you have available and compare it to your income. Having an open account at every store in the mall makes it look like you could get into trouble in a hurry, even though your new town’s mall may not have those stores. Also, it looks much better if the credit report says “Account Closed By Consumer” than if it merely says “Account Closed.”

Most of the credit reports will claim that there are three or four factors driving your credit score down. The mortgage brokers we spoke with said that they look first at the score. If the score does not meet their criteria, then they look at what is driving the score down. Unless it is an easy fix as outlined above (and months in advance of trying to borrow money), they advise that you should NOT try to “fix” your own credit without talking to your lender first. The reason for this is that each lender has its own criteria for making loans and you could do something that would “fix” some part of your credit report they consider unimportant only to knock yourself out of the running for a loan based on some other criteria that you must meet.

While this document was created with the help of current and former bankers and mortgage lenders, we cannot and do not guarantee that these methods will work in your particular case. While it may seem that we are pushing this issue too hard (and obviously we do get a small commission if you buy a report through our affiliate), nonetheless, it should be obvious by now that you need to find out what your credit report says as soon as possible before moving. So one more time-- “Obtain a copy of your credit report here!” :-)

© 1999

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