How’s Your Debt Ceiling?
Well, it’s time to talk about the U.S. debt ceiling. Again. If you’re wondering what the fuss is all about, this article does a nice job explaining it. In short, failure to raise the debt ceiling means that our government will be unable to pay its bills and obligations, which is bad. At best, it means that the creditworthiness of the United States will suffer.
What happens if you don’t pay your bills? The same thing. There’s a record of how well you stay on top of your finances. It’s your credit score. The better your credit score, the easier it is to borrow money and the lower the rate at which you can borrow.
How can you avoid the embarrassment of having lenders whisper behind your back about your debt ceiling? How can you put a spit shine on your credit score?
I reached out to Mark Vann at Fairway Mortgage for some guidance.
The first thing he said made sense, though I’d never really thought about it. There are many types of credit checks with varying levels of complexity. It’s easier to get a department store credit card than it is to get a mortgage, for example.
From there, he gave me three great practical bits of advice.
The best thing to influence your credit score is your payment history. Any payments later than 30 days or having anything in collections can damage this history. You want a long track record of making on-time payments.
If it’s bad, get rid of it. Do you have any delinquent accounts? Outstanding collections? Pay them off. He explained to me that a delinquent doctor bill, for example, can wreck your credit.
If you’re looking at a lot of these types of accounts, start with the smallest ones. The overall number of delinquencies looks bad. So don’t partially pay off a large account if, instead, you’re able to use that money to pay off three smaller accounts.
All things being equal, pay off the newer ones first. Old delinquencies hurt your score less than newer ones.
Delinquencies and collections stay on your report for seven years.
Bankruptcies, liens, and foreclosures stay with you for ten years.
Don’t use all your available credit. Lenders like to see that there’s lots of headroom before you get to your debt ceiling.
Your credit score may not matter much if you’re just responding to a credit card offer that came in the mail. But if you’re looking for a mortgage or planning to refinance a mortgage, you want the best possible rate for a loan of that size and length of time. Here’s hoping you manage your personal finances better than our friends in Washington, D.C.
Please reach out by phone or email if you would like to discuss any of this or if this makes you think of another topic you’d like to see me cover.
