If you want to know How To Improve Your Credit Score, you need to understand that it’s not something you’re going to be able to fix in a matter of days.
While it IS possible to sometimes get a negative item or two removed in 1 or 2 days sometimes, this is USUALLY not the case.
Here is a simple example to help you understand how credit scores are determined:
Say you’re a race driver. Simply winning a couple of races will not make you the best driver in the world. In order to be at the top – you have to win consistently over a long period of time. Your average lap times need to be the fastest.
Similarly, when it comes to credit scores – a couple of timely payments are not enough. You have to demonstrate that you can manage your credit effectively over a period of several months – you have to win multiple races consistently. Even then, your past problems will keep showing up on your credit reports. If your recent history is good enough, the damage caused by past issues will be mitigated.
Here are five easy tips to improve your credit score:
1) Keep your credit card balances low:
One factor that impacts your credit score is – how much revolving credit do you have and how much of it are you actually using? In an ideal scenario, you should be using less than thirty percent of your revolving credit. A good strategy to lower this percentage is to pay off your existing balances and then keeping them low (below thirty percent).
Even if you’re paying your balances in time and in full each month, you could still have a high usage percentage. Ask your credit card company if they are willing to accept multiple payments per month (weekly or bi-monthly). T
his way, your percentage will always remain low with respect to the total available credit. If all this is too complicated for you to understand – just use your credit card sparingly. Pay in cash or through a debit card whenever possible BUT use your credit card sometimes.
2) Do not try to remove old (paid off) debt from your credit report:
People are taught nothing about money management in schools and colleges. No wonder they have utterly nonsensical ideas pertaining to money. As soon as some people pay off their home loan or car loan, they try to get it off their credit report! This is a very, very bad idea – especially if you made your payments on time.
Understand this – having borrowed money in the past is NOT bad for your credit score. When you make timely payments on your loans – it actually improves your credit history.
It is like getting an A in school. Would you want to remove the As you got in school from your academic record?
Then there is no reason to try to remove records of past (paid off) debt from your credit report.
You might argue that what if you got Cs and not As – surely, those must be removed since they are hurting your image. Trust me, leave it alone. just continue making current payments on time and building a better record for your future!
3) Don’t apply for new credit until your outstanding balances are under control:
When you make several applications for new credit, it can lower your score slightly since it indicates that you want to use more credit.
If you need to make multiple inquiries about loans – make them within a short period of time. Don’t stretch them out too much. Once you make an inquiry, the dip in score lasts up to one year. There are a few exceptions to this rule though – when it comes to car loans, home loans and student loans – the software has become more considerate.
It understands that even if you make several applications, you will ultimately take just a single loan. Modern software (FICO) ignores applications that have been made 30 days before calculating the score. For other software, the range is between 14 to 45 days.
4) Be punctual with your payments:
The best way to improve your credit score is to pay all your bills on time. Your history accounts for 35% of your score.
So under no circumstances can you afford to forget paying bills, late payments mark your record and keep haunting you for seven years (unless you remove them the Smart Money Secret Way)!
Many people forget to make payments even though they have the money, You can get around this by setting up a payment reminder system or automatic debit system with your bank.
Many times, people are late on payments because they are saving money for their dream car or house. This approach can backfire, even if you have a substantial amount of cash in your account for the down payment. Banks might deny credit sensing that you have had financial stress in the recent past or they could charge an exorbitant interest rate.
5) Eliminate small balances:
Don’t use card for paying 20 bucks and then another for paying 50 and then a third one for 30. Pay off the existing small balances on your cards and then use one or two cards (the ones with the lowest interest rates and the best perks) to do all your shopping. Balances from multiple cards look bad on your credit report. Don’t cancel the cards that you are not using – keep them in case of an emergency.
Try to reduce the amount the amount of money you owe – it accounts for 30% of your credit score. Get into the habit of smart spending – don’t be an impulsive shopper. Even though this might seem frustrating since you’ll not get instant gratification, you’ll be able to make bigger, more significant purchases in the long run!
Next step; check out the article below talking about Alison’s Smart Money Secret – it has the potential to change your life!