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How Can I Improve My Credit Score?

 

Improving your credit score is beneficial for all consumers.

 

Last week we spoke about how payday loans can affect your credit score and it brought up the topic of how can you improve your credit score? I decided to do some research on some ways that you may not have thought of to improve your score. I don’t need to tell you how an improved credit score can help you out financially and open some doors for you. If improving your credit score is a goal that you have set for yourself, it is achievable, but you must be diligent.

First, it’s important to know that if you have what is considered poor credit, between 580-619, you are not alone. About 1/3 of Americans have a credit score that is below 601, according to a study done in 2016. What does having a poor credit score mean? Well, for one, higher interest rates on credit cards and loans, because a low credit score can indicate a higher likelihood to default on a loan, since this is riskier for the lender, they will charge you a higher interest rate. It also means that your credit, loan, or even rental applications are less likely to be approved for the same reason above.

Second, if you have poor credit, then how can you improve your credit score? In this instance, slow and steady wins the race. Credit takes several months to repair, so don’t get frustrated if you’re not back to “outstanding” credit after only 30 days. Before you get started you are going to want to pull your full credit report. You are allowed one free credit report every 12 months that won’t hurt your credit score. You can access this by going to www.annualcreditreport.com and request your free reports. Now, there is a little trick here. You can either pull a comprehensive report that includes all three of the major credit bureaus; Transunion, Equifax, and Experian, or you can request one at a time, so you can pull a free report more than once a year. I would recommend pulling one at a time.

Once you’ve downloaded your credit report, print it out and analyze every part of it. If there are parts that you don’t understand or if something looks like it’s been incorrectly reported then you can dispute these charges or inquire for more information as to why they’re on there. You can do some research online or call a credit counseling agency to get more information. Now that you’ve done preliminary work, let’s get that score up!

 

Reduce Credit Card Balances.

This one is pretty obvious but when credit balances are too high based on your credit limit it has a negative affect on your score. In fact, the level of debt accounts for 30% of your total score. Multiple cards that are maxed out can have an even worse affect. Good credit utilization is generally 30% or less, and is paid off in full every month. If you are in a position where all your cards are spent to their limit, then it’s time to make a change. If you’re making just the minimum payment amount every month, it’s like using a squirt gun to put out a wildfire, the difference it makes is negligible.

First, review your expenditure. Where are you spending money that could be saved? Eliminate unnecessary purchases and use that extra money to put down more on your credit card balances. If you’re unable to eliminate enough purchases, then start thinking of ways to make extra money throughout the month. See our blog post here about side jobs that can make you serious cash, www.netpayadvance.com/hustle. Multiple cards with high or maxed-out balances? Start with the card with the highest interest rate. Get that card paid down, then work on the next highest and so on. Again, this is going to be slow and steady and will take a lot of self-discipline but reducing your credit balances will make a serious impact on improving your credit score.

Also, don’t let your payments go to waste by just raising your balances again by making unnecessary purchases. Shred your cards or keep them in a safe place that isn’t your wallet, so you don’t have the temptation of spending the money that you just made strides to reduce.

Finally, tax returns are a great tool to pay down some high or past-due balances. Instead of spending away your tax returns this year, use it to help your financial future by paying down high interest credit cards or loans.

 

Make On-Time Payments.

Late payments can happen, but a late payment several times in a row on multiple accounts will cost you. Don’t let something as simple as not paying your bill on time bring your credit score down. Set up reminders on your phone or sign up for automatic payment to make sure that you are making payments on time on a consistent basis.

Find you have some extra cash you want to put towards your balance throughout the month? Go ahead and make a payment, even if it’s before your due date. Good payment history accounts for 35% of your score. Turn bad history into a good future by making your payments on time.

 

Limit Applications and Credit Checks.

Hard checks on your credit can ding your score. This means that you either applied for something that requires a credit check; i.e., a loan, car, mortgage, credit card, etc. and the company needed to evaluate your credit history or you’re checking your credit score too often. If you are unsure if you will be approved and are working on building your score back up, eliminate unnecessary credit checks. This is where downloading your free credit report is so important and why I recommend doing each credit bureau one at a time, so you can monitor progress on a quarterly basis and not hurt your score in the process. Inquiries account for 10% of your score, not as high as other but can still make an impact.

Want to keep an eye on your score on a consistent basis? Of course, there is an app (or multiple) for that. Keep in mind that these won’t be 100% exact but will be close and can notify you when your score improves or takes a dip on a month to month basis. I recommend the Credit Karma app and it can be found on Apple and Android app stores.

 

Apply for a Secured Credit Card.

Obtaining a secured credit card is a great way to improve your payment history. This is a solution where you make a deposit that “secures” the line of credit the lender is extending to you. Essentially working like a debit card rather than a traditional line of credit. Adding a new account is ONLY recommended if you make payments on time and stay under the 30% credit utilization level. Keep this practice up to see an increase to your score.

 

Become an Authorized User on Another Card.

If you have a friend or family member that has solid credit and is willing to make you an authorized user on their account, this can also be a great way to improve payment history. While this is essentially piggy-backing on someone else’s good credit to improve your own, it can be very beneficial for you. Our best advice, if you become an authorized user on someone else’s account, don’t make any charges. In fact, if you get your own card on that account, shred it or let them keep it. You would never want to have the temptation of using someone else’s credit limit or risk jeopardizing their good credit.

 

 

 

 

 

Monday, January 22, 2018
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