Top 10 ways to improve your credit scores
I read and interesting article at About.com on how to improve your credit score. Here is a summary of what they said.
- First of you should understand what goes into the calculation of your credit score, and after you do that you can develop a plan for improving your score. You can get your credit score from different places on line however, probably the easiest way to do it is to go to a bank and get prequalified for a loan and they will run the credit report for you. I have looked at some of the free credit report companies online and I am concerned about giving them my social security number and my credit card information. If they say free credit report then why do they need my credit card number?
- After you have a copy of your credit report, review it carefully and look for errors and if possible correct any significant errors. It was amazing to me one time we went to apply for a home loan and they said we had a late payment. I was pretty shocked and it turn out it was a stupid department store bill that we had forgotten to pay one month and they immediately turned us in as a late pay. Since then I have pretty much refused to have any more department store credit cards, gas cards, etc.
- Pay your bills on time. Of course this goes without saying as the most important thing that you can do to maintain and improve your credit score.
- Don't open a lot of new accounts over a short time period, especially if you have a short credit history. This ties into point number 2, if you have a Visa why do you need a department store card and a gas cards and a Lowes card, etc. Additionally, if you search around you can get a Visa or Mastercard that pays you rewards.
- Shop for credit over a short period of time. FICO scores distinguish between searching for credit for a specific loan and searching for lots of different credit lines. I wasn't exactly sure what this meant however, I believe what happens is if you apply for loans or credit cards this activity is turned in on your credit score. I didn't realize this but it is an interesting point.
- If you have a questionable credit history, open a few new credit accounts, use them responsibly, and pay them off on time. This is a core principle of life, pay off your credit card debts and live within your means. Your goal should be to get out of debt and build up savings for rainy days expenses, saving for retirment, and your kids college education.
- Don't open credit accounts you don't intend to use. See point number 2 again.
- A credit card or installment loan can raise your score as long as you don't have too high a balance and you pay it off in a timely manner. The credit score companies will look at your debt ratios. Having a high level of debt will raise your risk factor. So again paying off of your debts is one of the number one ways to improve your credit score.
- Keep your balance low in relation to your available credit. If your credit limit is $10,000, keeping your balance below $2,500 (25%) will improve your score. Better than that pay off that $2500, why do you even want to run a balance.
- Pay off credit card debt rather than move it around to lower rate cards. Moving balances to other credit cards and closing out the old account can hurt your score because it can change the ratio of your total credit card balances to your total available credit lines. By moving stuff around from one credit card to the next has the appearance of running from the problem. I always hate when you get a new credit card and they send you checks to do balance transfers. I am not going to transfer a balance. Key point borrow money from a bank not a credit card company. I just boat a new camper and the rate was 6.75%. Try to find some long term credit cards that have a rate close to that.
- Finally you need to remember that negative items affect your credit score much more quickly than positive items. Late payments can negatively affect your score in just a few months, whereas paying bills on time may take 6 to 12 months to generate a significant improvement in your score. Good credit scores are a sign of clean living, if you spent the money you have to pay the bills and pay them on time. Get yourself out of debt. One of the best things to do as well is to setup as many of your bills as possible on automatic payment. This will ensure that you are not late in making your payments.
- Paying off your credit cards
- Finding cheaper loans
- Cut college tuition cost in half!
- Interest only loans
- Investing In Mutual Funds
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