Improving Your Credit Score By InCharge Debt Solutions
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Improving Your Credit Score
This book will focus on improving your credit scores and provide you with information on how you can do even more to improve your credit status. Doing so will go a long way towards improving your credit score because your credit score is derived from the information in your credit report. But there is even more you can do. This book covers techniques for raising your credit score as high as possible. The benefits will be two-fold—you will have greater access to credit and the credit you obtain will cost less.
What You Need To Know!
You may find that your credit score is still lower than you would like (or deserve) even after making sure your credit report is accurate. The average FICA credit score has fluctuated between 675 and 700 in recent years, with 850 being the maximum score one could have. People with below-average scores must pay high-interest rates.
What Can You Do?
First, you need to recognize that efforts to improve your credit score
take time to have an impact. Most people find that it takes about one year for their score to show much improvement. This is partly because changes take time to show up in your credit report.
But it is also true that your credit history stays with you for a long time. If your history is positive, that is a real plus. But if your history has some negatives, those stay in your credit file for six seven years. New positive information helps, but it does not erase old negative information.
Nonetheless, waiting to do something about a low score only prolongs the problem. The time to get started is now. Basically, there are two broad categories for the things you can do to improve your credit score. The first involves improving your financial behaviors. The second involves changing your debt situation. For each, let’s list things you should DO and things you should NOT DO.
Improving Your Financial Behaviors
DO pay your bills on time. The largest single component of a credit score is your payment history. If you are late on or skip payments on items such as credit cards or vehicle loans, your score will surely be affected. This is true for installment debt payments—such as a television—and any of your monthly bills, such as your utilities. This is because many merchants—not just lenders—report payment patterns to credit bureaus.
DO focus any search to obtain new credit within a short period of time, such as one month. The number of inquiries from lenders in your credit bureau file negatively affects your credit score. If the inquiries all come in within thirty days they will all be recognized as part of one search— such as for an auto loan. But if you spread your search over several months the pattern will look like multiple searches—a negative in most credit scoring systems.
DO check your credit score periodically—perhaps every six months while you are working to rebuild your credit score. Your own inquiries do not negatively impact your credit score. Make sure you get your score directly from the credit bureaus or from FICO. Using a second party to get the score (such as the many “free offers” you might see on the Internet) will be viewed as coming from a lender. This means they will be counted as a lender inquiry, and that is a negative.
DO avoid applying for any new credit for one year. Inquiries from creditors are automatically deleted from your record after twelve months. This technique is especially helpful if your credit report
currently shows a high number of inquiries. That fact, in and of itself, maybe the major reason for a lower than necessary credit score.
DO NOT ignore bills for which you are currently behind. Bring them up-to-date.
DO NOT open multiple new accounts just to show a credit history. If you have had little credit in the past, open no more than one or two accounts and build your history slowly.
DO NOT close old accounts. Length of credit history has a positive impact on your credit score. Having a large number of accounts in good standing with zero balances is a plus, not a negative.
Changing Your Debt Situation
DO reduce your balances on your credit cards and other loans. If you a high outstanding balance on one or more of your credit cards, you will lose points on your score. Lower balances tend to lead to higher FICO® scores. Pay down your balances and keep them low.
DO NOT open new accounts to transfer high balances and spread your total debt across multiple accounts. If you feel you could benefit by moving a portion of the balance on one card to another, use an existing account. Of course, you would not want to move a balance from a low interest rate card to one that has a higher rate.
DO get help if you are having trouble paying your debts. It may be possible to have your debts renegotiated if you can show that your difficult financial situation is temporary and it can be improved over time. For example, you may have fallen behind in your bills because of unemployment but you are working again now. You can contact lenders directly or use a reputable not-for-profitcredit-counseling agency. You are not asking your creditors for forgiveness here—you are just asking for a little more time.
DO pay off any late or written-off debt. These items will still stay on your credit report but the fact that you made good on the debt will be a plus.
DO re-establish your credit if you have had problems in the past. Opening one or two credit accounts and using them responsibly will slowly but surely rebuild your credit score. This may take a few years, however.
DO stop using your credit cards if you are not paying your balance in
full each month. Using a card on which you carry a balance is almost guaranteed to result in ever-increasing balances.
DO NOT ignore debt problems. Credit scores can go down much faster than they can go up. Lenders typically report negative information right away. Again, contacting lenders directly or a telephoning a reputable credit-counseling agency can be of help.
DO NOT use repossession as a way to get out from under a debt. Repossession negatively affects credit scores even if the repossessed item has sufficient value to pay the debt. And in most cases its value is not enough to pay off the full balance owed. Thus you will still owe some amount of remaining debt. It would be better to sell the item yourself, add additional funds if necessary, and pay off the debt in full.
What You Can Do!
Action Module: Improving Your Credit Score
Now that you know some of the DO-s and DON’T-s of improving your credit score, its time to take action. The two worksheets below can help you chart a course towards a better credit score. The first will help you make sure you pay your bills on time. The second provides a checklist for the steps you want to take to build your credit score.
Action Module A: The Bill Paying Calendar
Improving Your Credit Score
Paying bills on time can go a long way toward increasing your credit score and keeping it high. But how can you manage that? One simple technique is to set up your bills as automatic payments from your checking account. Most utility companies and lenders have such plans. You may even receive a discount if you use this automatic system.
Another helpful method for paying bills on time is a bill-paying calendar as illustrated below. The purpose of such a calendar is to put your bill paying on a schedule that is easy to understand and follow. As indicated, you want to clearly see what bills you have on a regular basis, when they are due, when they should be sent, what is the typical amount and to check them off as they are paid.
You should keep the bill-paying calendar in a prominent place— perhaps taped to the side of your refrigerator.
Action Module B: Credit Score Improvement Checklist
As you read through the first part of this book, you probably recognized a number of things you could DO to improve your credit score. Which ones were they? You also probably recognized some DO NOTs that you have been doing. Which ones were they? The checklist below can help you begin the process towards addressing these situations and improving your credit score.
∙You can improve your FICO® score and thus enhance your eligibility for credit by fixing credit report mistakes
∙Make all payments promptly. This will ensure that new, negative items do not appear on your account.
∙Pay down existing credit balances.
∙Do not add new accounts in order to lower balances on old accounts.
∙Do not close long-term accounts
∙Establish new credit, but only if you have little or no existing credit history.
∙Use automatic payment plans or a bill paying calendar to ensure that all bills get paid on time.
∙Taking actions to improve your credit score will be easier if you write down the specific item that is affecting your score, specify the action to take and identify how you will know that the situation has changed.
SECTION IV, The Fix is On! helps you begin the real work of taking the right steps necessary to improve your credit status.
Improving Your Credit Score
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