By HILARY JOHNSON
TEN WAYS TO IMPROVE YOUR CREDIT SCORE
Part One Through Five
Your credit report is one of the most important tools you have in the financial world. It defines who you are to lenders of all types. Removing errors from your credit report, or “cleaning it up” is only one part of the process. You need to ensure that you are doing everything possible to keep your credit report in stellar shape so that you also look great in the eyes of a credit card company or home mortgage lender.
Part of this process is to tackle the errors on your credit report. That is the right place to start since this information is hurting you for no real reason. As you wait to find out if the errors will be removed by the credit reporting agency, take some time to work through the following steps.
These ten methods to improving your credit score are simple and straightforward, but they also provide you with the resources you need. They may not be easy to do and most of them require time. Nevertheless, making key decisions right now will help you to get back on track and have a high-ranking credit score.
Keep in mind the importance of a quality credit score. With many banks and lenders tightening their lending practices, they simply are not giving out the types of loans you may be used to getting with an average or lower credit score. In fact, if your score is not in the upper 700’s, you may be unable to get a home loan without a significant amount down.
The days of having a 400 credit score and getting a great line of credit may not be back anytime soon. Therefore, take steps right now to improve your credit score so you do not have to hope that you can get that home of your dreams.
#1: MONITOR YOUR CREDIT REPORT
As we have talked about, knowing what is on your credit report is the key to being successful at managing it. But, just pulling your credit report one time is simply not going to cut it. You need to know what is happening on your credit report regularly.
It is an option to get a copy of your credit report for free only one time per year from each of the three credit bureaus. This means that you can get a copy of your report every four months for free. Most of the time, the information included on one will be the same as all three reports. Nevertheless, there can be differences, which is where you need to be cautious.
If you have found very few mistakes on your credit report up to this point, do not worry about doing anything more than what you are already doing. As long as you are monitoring the report every four months, you should be all right and you should catch errors often enough.
On the other hand, if you have a credit report that has been full of errors, especially those concerning identity theft or larger scale problems with address mistakes and problems with particular creditors, it is best to look for a service to help monitor your credit. These services are available through each of the credit reporting agencies, TransUnion, Equifax and Experian.
There are a variety of types of service and reporting options to consider here. For example, you may choose to have just a copy of your credit report sent to you each month. You may want to watch your credit more closely and want to have a new report more often, such as every few weeks. You may want to know your credit score, too. The more often you need to know your credit report information, the more costly the reporting costs will be. The credit score is usually an additional cost to the credit report.
Reporting services like these can range in cost from $10 a month up to $30 or $40, depending on the type of service you select. Choose what works best for your individual needs. It may not be necessary to have a product that provides you with a large amount of information or frequent reporting, unless you have been having significant problems.
#2: USE CREDIT WISELY
Credit is like a gift. You get it, but only for as long as you take care of it. Stop taking care of the gift, and it will fall to pieces. It is much more difficult to pick up those pieces and tries to put the puzzle back together than just to maintain the gift in the first place.
Take credit seriously and only use it when you need to use it. For example, it is important to realize that credit that is used during the month should be paid off within the month. That way you do not pay any financing charges and your balance remains low.
It may be important to know what the credit reporting agencies think is important when it comes to credit reports:
Low balances compared to the amount of available credit Payments are made on time.
You do not have too many credit cards.
The amount of total debt you have is not too high, or higher than what is considered appropriate for your income level. This is a debt to income ratio.
It is best to keep the credit you have low in use. Make your payments on time and be sure that you are monitoring your credit limits as often as possible. Paying off the balance on your credit cards on time is quite helpful to maintain a low balance and saving yourself a good deal of money in the process.
Credit is a necessary for purchasing a home and buying a car, most of the time. You will need it throughout your life, which is why you will need to keep your long-term financial goals in mind when using credit for any reason.
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#3: PAY YOUR DEBT DOWN
If you are like most Americans, you have a sizable amount of debt already. How in the world will you be able to get your credit score up if you are struggling with a large pile of debt? The tips provided here should be a great place to start. The key is to work towards your debt step by step until you can pay it down totally. In other words, if you have a lot of debt, just start working towards paying it down now.
There are two main objectives to consider when paying down debt. Choose the method that works best for you.
Pay down your debt pay making the minimum payments on all of your accounts except for the one with the lowest amount owed. Pay this one with as much as you can until it is paid off. Then, take all the extra you have (including the minimum payment from the first paid off account) and apply it towards the next lowest debt you have. Keep going one by one. The benefit here is that you are paying down your debt quickly: you will see results more often at first, which is great motivation to keep going.
Apply the same practice as in the last method, but this time, arrange your debts by the amount of interest that is charged on them, with the highest debt being paid off first. This way, you are able to pay down the type of debt that is costing you the most. Technically, you will pay less on the debt this way, too.
In either of these options, stop using your credit cards regularly. Put them away. Save them for a rainy day. Put away $1000 into a savings account for emergency needs. Use it just for emergencies. This keeps you from applying too much debt to your credit cards. Eventually, you cut your debts considerably.
#4: MONITOR AND LIMIT INQUIRIES
As mentioned earlier, inquiries on your credit report will detract from it. It is inevitable to have some, especially if you are looking for new lines of credit. The key is to keep them as low as possible. On your credit report, there is a separation between the two types of inquiries, those that affect your credit score and those that do not. The goal is to monitor both, though. If you are prone to accepting credit cards if offers are sent to you, sign up for a do not mail registry. You can opt out of future credit card offers by visiting the website of the Consumer Credit Reporting Industry at OptOutPrescreen.com. You can also locate the Federal Trade Commission for your state and request that these offers stop that way, too.
While you are watching your credit report, keep an eye on the credit
inquiries, too. You definitely have to ensure that those that count against you are monitored. Report anything that should not be there. In addition, if they do not come off your report within two years, these too should come to the credit reporting industry.
What about the way that you use those credit inquiries? The best way to keep them off your credit report is to ensure that you are not over applying for lines of credit. Here are some tips:
- Choose one or two cards to apply for at any time. Limit the number of applications you file within 3 to 6 month periods.
- When you are shopping for the best insurance or credit card, ask for quotes from the service providers without allowing them to pull a credit report. Let them know the approximate credit score you have. This will allow you to compare several lines of credit or insurance companies without having to subject your credit report to too many inquiries.
- For larger loans, such as a home mortgage loan or car loan, again obtain quotes for loans based on your approximate credit score. This also protects your credit. Many lenders allow you to do this right online. If they do not, look elsewhere for the loan you need.
#5: DON’T OVER OBTAIN
Many times, it can seem like lenders are willing to give you an unlimited amount of credit. Beware of this. Lenders may see your credit report and believe you are a good risk. They may not realize that three, four or more credit lenders have also noticed this and also have offered you lines of credit. It is easy to get too much credit.
You may be thinking, “is there such a thing as too much credit?” The answer to this is yes! If you have too much credit, lenders will begin to freeze up on you. The problem is the credit to income ratio, or the amount of money you bring in with the amount of potential credit you have available to you. If you have too much credit, the lender may determine that you are too risky to lend more money to, even if you have a lot of open, available credit.
In this situation, you may not have a problem unless you are hoping to get a large loan such as a home loan or a home equity line of credit. In these situations, you may be limited. Obtain only the amount of credit that you need to have. Even if you do get offers from a variety of other lenders over the course of time, you do not have to get them all!
In situations where you receive an offer for a lower interest rate than the rate you are already paying, consider closing the original line of credit prior to accepting the new line of credit. If the account will close after you pay it off completely and it is not one of your oldest credit cards, you may find closing it to be an easy decision.