You’ve followed all the rules you’ve been told. You made sure to start off with a secured credit card, you’ve made all payments on time, stayed well-under the 30% credit utilization rate, and didn’t apply for any new credit lines for an entire year. You’re feeling really confident, you log into your credit monitoring app and see this!
Your FICO score is in the high 700’s! Okay, let me stop. I’m going to keep it raw, I won’t sugarcoat this story. This is my FICO score today, about three months ago my score was around 754. I was ecstatic! Like I mentioned earlier I made sure to take all the correct steps to have that high score. I had officially went from GOOD to VERY GOOD. I was in the safe green section on the credit meter, I was feeling so good! So guess what I did?! I went to the bank confidently and applied for a mortgage loan. While there, I’m telling the loan officer about my awesome credit score and how I’ve never been late on a payment, I do not have any debt and how excited I am to purchase my first condo before my actual goal (which is buying my first property by 28, I’m 26 right now), anyway, she’s just smiling while entering my information. As I confidently wait for about 15 minutes, she turns her head from the computer screen and says Crystal Manzana, your loan application has been Denied! My exact reaction, GIF: Tittus Burgess
I flew back and clutched my pearls! Confused, shocked and again confused. Like what do you mean, I’m denied? I have a VERY GOOD score. How could this be? She goes on to say it’s because I have a thin credit file.
If you didn’t read my previous post, I mentioned the banks DO NOT CARE ABOUT YOUR CREDIT SCORE. I repeat, THE BANKS DO NOT CARE ABOUT YOUR CREDIT SCORE. Why? Because they just don’t. They care about your credit history, they care about the meat of what’s reporting on your credit report. This is why I stress to my clients the importance of accurate details reporting on their credit reports, the importance of not having derogatory remarks reporting to your credit report. So, what’s a thin credit file? A thin credit file is a financial designation of having a limited credit history. It pretty much shows the lenders you’re new to the credit world. Sometimes even by simply only having one account
for 20 years may be considered a thin credit file because it’s the only file reporting. Check out the chart to the right, it’s a break down of how the banks consider your credit age. It’s showing the first four years of credit history as thin, “the red zone”. Don’t get discouraged, this doesn’t mean you’ll be getting denied for other loans. You still have high chances of being approved for other credit lines or loans, as long as your reporting responsible credit history. This now means you have to create a plan. Improve your age of credit history over time by keeping your accounts open and in good standing.
Once I was denied for my mortgage loan, I decided to create a plan with a realistic time frame. By the time I head back to the bank for a mortgage loan, I should have the necessary credit history and perfect score to get approved for the loan. Not only get approved but also get approved with a low APR and low interest rate.
Here’s a list of a few things I’m going to do to continue improving my credit history.
1. #1 RULE make on-time payments
I will probably say this at least three times in every single post. I say this 100 times because it is important. It’s a key to having the perfect credit score and history, showing you have a history of on-time payments shows the banks or lenders that you are responsible.
2. Pay More than the Minimum Payment
This is important to do because you want to pay off your debt as soon as possible. The sooner you pay off your debt, the less likely you’ll be paying back a lot of money in interest. It also shows the banks you can pay off your loan in an appropriate time frame.
3. Apply for a Credit-Builder Loan
A credit-builder loan is exactly how it sounds, it’s designed to help you build your credit and give you history. These kind of loans are available at banks and credit unions. In most cases, the money you borrow is actually held by the lender in something like a trust account. Once you’ve paid the loan in full, the funds are released to you. If you do consider a credit-builder loan, look for one with a short term, like 24 months or less.
4. Get Your Rent Reported to the Credit Bureaus
Yes, you read that correct. If you rent your home and are known to always pay your rent on time, why not have it reported to the credit bureaus? Having your rent reported to the credit bureaus shows as a revolving account on your report and helps build your history by using the rental-payment data. Rental payments can now be reported to the three credit bureaus, Experian, Equifax and TransUnion. Talk to your landlord and see if he can report your payments to the credit bureaus, if not look into a few apps that help report your payments monthly for a small fee.
5. Do not apply for a Bunch of Credit Lines
Sometimes you may get anxious and apply for several credit lines in hopes that will help you accelerate your credit, trust me it won’t. It may actually effect you in a negative way and drop your score. Be considerate to your score when applying, if you decide to apply to a new line of credit wait at least a minimum of six months before applying for a new line.
Remember, it takes at least a minimum of 3-4 years of positive credit history to safely get out of the thin credit line zone. Credit building takes time and this game is all about PATIENCE!