Five smart moves to improve your credit score for the best home loan
We’ve talked a few times about how important it is to know what is on your credit report, and the differences in credit scores. We found an excellent guide from Yahoo! Finance for improving your credit score if you are looking at becoming a first time homebuyer.
“Your credit score is the foundation of your financial health,” says Anthony Sprauve, senior consumer credit specialist for Fair Isaac Corporation (FICO), an analytics software company and owner of the FICO Score. The FICO score is a standard for measuring credit risk in the credit card, banking, retail, and mortgage industries.
- Increase the limit on your credit cards. But beware of going too high as there may be some strong temptation. Once you’ve secured your mortgage and have those limits reduced back down.
- Only use 7 percent of your revolving credit. “While people with high FICO scores are not perfect, their consistently responsible financial behaviour pays off over time,” Sprauve says.
- Don’t cancel older credit cards. It reinforces how responsible you are by managing credit for a longer time.
- Don’t apply for more than two credit cards each year. What kind of risk do lenders see? Well, statistically, people with six or more inquiries on their credit reports can be up to eight times more likely to declare bankruptcy than people with no inquiries on their reports, according to myFICO.
- Give yourself at least six months to review and fix your credit report.
Red Flags That Tempt the Tax Auditor
Is there anything more frightening than the idea of being audited? (other then public speaking, of course)
When the IRS Restructuring and Reform Act was enacted in 1998, lawmakers ordered the agency to focus more on taxpayer rights instead of collection activities. In fact, the first year of the kinder, gentler IRS, about 1 in 79 tax returns were audited. By 2003, it was even easier for tax scofflaws; that year, according to IRS data, only 1 in 150 individual taxpayers were audited.
But there will always be the red flags that trigger audits.
Believe it or not, the number of audits remains low. In fiscal year 2013, the IRS audited 1.4 million people, or less than 1% of returns filed last year and the fewest audits in five years.
Even better news is that most of us aren’t in the cross-hairs because the IRS has been focusing on the rich. If you made less than $200,000 last year, your chance of being audited was just 0.88%. That’s down from the 0.94% audit rate in fiscal year 2012.
But what can you do to avoid being audited?
“Don’t draw any more attention to your return than you need to,” says Robert G. Nath, author of “The Unofficial Guide to Dealing with the IRS.” “Simple, plain-vanilla returns are fairly safe.”
The IRS says there are several ways a return can be selected for audit and the first is via the agency’s computer-scoring system known as Discriminant Information Function, or DIF. The IRS evaluates tax returns based on IRS formulas, and DIF is based on deductions, credits and exemptions with norms for taxpayers in each of the income brackets.
So what is likely to trigger a discriminant information function red flag?
- Higher incomes.
- Income other than basic wages; for example, contract payments.
- Unreported income, such as investment returns.
- Home-based businesses, especially when in addition to salary income, and home office deductions.
- Noncash charitable deductions.
- Large business meal and entertainment deductions.
- Excessive business auto usage.
- Losses from an activity that could be viewed as a hobby rather than a business.
- Large casualty losses.
But don’t let the fear of an audit keep you from taking legitimate deductions.