Who is better at managing credit, homeowners or renters?
According to a new survey, more than 81 percent of homeowners believe they manage their credit well. Just 65 percent of renters feel the same way. Not only that, but 54 percent of renters feel that they are carrying more debt than they should, compared to just 39 percent of homeowners.
But some of the survey results suggest that perhaps both homeowners and renters need additional help.
The survey, which was conducted by the Mortgage Bankers Association of America (www.mortgagebankers.org), found that 81 percent of homeowners and 79 percent of renters know someone who has been in serious trouble with their credit. When asked if they personally had been in serious trouble with their credit, 40 percent of homeowners and 54 percent of renters said yes.
“Renters reported being less confident about managing their credit extremely well, but 75 percent of them have recently requested a copy of their credit report,” noted Doug Duncan, MBA senior vice president and chief economist.
From the survey responses, it’s clear that both renters and homeowners are checking their credit reports, Duncan said, noting that 45 percent of renters hope to become homeowners in the next few years.
While checking your credit history is a good first start, you have to pay your debts on time if you want a high credit score. That appears to be a problem for a much smaller percentage of homeowners than renters.
Approximately three-quarters of homeowners and half of renters have no debt or pay off their debts in full at the end of the month. But 12 percent of homeowners and nearly a third of renters find it difficult to pay the minimum monthly payments and make ends meet. More than 70 percent of homeowners and renters believe Americans don’t manage their credit responsibly.
Of those that carry debt, nearly 40 percent of homeowners and more than half of all renters believe they have more debt than they should.
Both homeowners and renters appear interested in improving their credit histories and raising their credit scores. Here are four ways to build great credit:
Always pay your bills on time. Even if you don’t have enough cash in your checking account to pay off your bills in full at the end of the month (although that’s ideal), you must pay the minimum amount due each month in order to avoid penalties and late fees. Paying your bills on time shows creditors that you know how to manage your debts, and take care of your credit.
Watch your debt-to-credit limit ratio. Most consumers aren’t aware that credit scoring algorithms ding them for having too much debt relative to the line of credit that is available. Credit experts say you should never carry a debt larger than 25 to 30 percent of your available credit limit. For example, if you have a $6,000 limit, your balance should not exceed $1,800. If you want to have a higher credit score, you’d be better off carrying smaller debts on a larger number of cards than maxing out the credit limit on a single credit card.
Don’t open up too many new lines of credit. You should try to limit how many new cards you open. If you have too many lines of credit, it can count against you. And every time you open up a new line of credit, the creditor pulls a copy of your credit history and score. These are called “inquiries,” and if you have too many of them, it can lower your credit score. There are two exceptions: When shopping for a car loan, you’re supposed to have a 14-day grace period in which you can apply for various loans and the inquiries won’t count against you. When shopping for a home, the grace period is expanded to 30 days.
Keep the cards you have. A fairly significant part of your credit score is based on how long you’ve actually had various lines of credit. So if you’ve had the same credit card for 20 years, your score could be 25 points higher than if you’ve had the same credit card for 15 years. The longer you’re able to keep the same credit card, the better your score will be.
For more information on building great credit, check out MyFico.com (www.myfico.com)
Published: Jun 14, 2006