I recently downloaded a FREE copy of mine and my wife’s credit report from one of the credit reporting bureaus. Checking our credit report is something that I do often. With identity theft on the rise and companies like insurance companies, landlords and utility companies are all checking your credit to determine your final cost. It is important that we all stay diligent and on top of our credit.
As I travel the country, doing financial workshops and seminars, the workshop that usually produces the most questions is the credit workshop. Checking your credit report regularly is necessary; however, checking your report is only part of the equation. The other part of the equation is your credit score. Your credit score is what lenders and the previously mentioned companies use to determine your credit worthiness.Your credit score is a mathematical formula created by companies like The Fair Isaac Company (FICO) to predict how you will pay your future financial obligations. The credit score is a three digit number that rates consumers past relationship with creditors. Your score ranges from 350 to 850, a score of 850 puts you in a small percentage of individuals with premium credit, a score of 350 means you couldn’t finance a pack of gum. The following are five things that you could do to improve your credit score.
IMPROVING YOUR CREDIT SCORE
When it comes to improving your credit score, the first thing you have to remember is that your score changes as often as your report does. Since most creditors report information to the credit reporting agencies monthly, it is safe to say that your score could change as often as monthly. To improve your score you must be patient with the process and let time work to your benefit. I have to be honest the process could of getting better credit could feel like watching paint dry, but if you consistently follow healthy credit habits your score will change faster than you think.
Fix all errors on your credit report immediately
One survey reported that some 52% of individuals surveyed had at least one major error on their credit report. You want to fix any areas on your credit report that has errors. You can get a free copy of your report by going to the following website www.annualcreditreport.com Consumers can access a free copy of their credit report every twelve months from all three-credit bureaus. Therefore, you should get your report, check it for errors, and dispute those errors right away.
Pay your bills on time
The largest percent of your credit score (35%) is based on payment history. You want to build a strong payment history to get your score higher. The longer that you go without any late payments the higher your score will be. This is the best and fastest way to rebuild your credit. Having one 30-day late payment could decrease your score as much as 20 points. Even if you have had credit problems in the past depending on the size of the debt and how many creditors you have, a good 12 months of continuous payments on time could get you back on track very quickly.
Back away from the edge
Reducing your credit card balances will have a noticeable impact on your credit score. The next largest percent of your score (30%) is based on the amount owed to creditors. You never want to max out your credit limit; in fact, you want to stay below 50% of your credit limit. For example if you have a card with a $3,000 limit you want make sure the balance is below the $1,500 mark. By spreading your debt among all of your cards so that you are below 50% of the limit can sometimes improve your score.
Also, pay off your debts rather than moving them around. Playing the credit card shell game does not improve your score. Be careful when you are closing accounts because you could be reducing your overall available credit which combined with being close to the limit on other cards will negatively affect your score.
Commit Commit and Commit
It is natural to want to close old accounts, but keep in mind that (15%) of your score is determined by the length of time you have held credit relationships. Opening new cards and closing old ones could affect your credit negatively in the short run. Maintaining a long-term healthy relationship with your creditors will serve you better in the end. Now that you have credit, you want to keep a couple cards to develop a history and only use them occasionally.
Look Before You Leap
The last thing that you can do to improve your credit score is when you are in the market to make a major purchase you want to check your credit in advance before applying for credit. Even though new credit only makes up a small percent of your score, (10%) you still want to manage this portion of your credit score.
Every time you apply for credit it will have an impact on your score because inquires will remain on your credit report for 24 months. However, there are some things that you can do to minimize the effect of shopping for credit. Though every hit will count against you, the FICO scoring model tends to ignore mortgages and auto loans that are generated within a 30-day period and inquires made within a 14-day period will count as one inquiry.
Remember, in times of crisis your credit could be one of your most powerful tools. Not only does everyday life hinge on you having good credit, your future success depends on you having good credit. Since you have already created a history of having credit then you must do everything you can to maintain a good credit history.
Lonnie R. Mathews wrote this article for the Who's Minding Your Money blog. Lonnie is an author and speaker in the area of personal finance. To learn more about Lonnie or to contact him visit www.lonniemathews.com
No comments:
Post a Comment