How to Increase Your Credit Score
Your credit score is more important today than potentially anytime in the past. A great score can help you to borrow money at a reduced cost, qualify for mortgages, valuable credit cards, and can even help you get a job. Did you know that many employers are running full credit checks on potential employees? They want to see how fiscally responsible you might be before they hire you. There are myriad reasons why you want to have a high credit score. A score that stinks won’t help you at all.
The hard part is increasing a lower score. It won’t happen overnight. Here are some great techniques that anybody can use to help achieve higher scores!
Don’t Carry High Balances on Your Credit Cards
It’s not the number of credit cards that will hurt you, nor is it the amount you pay every month. It’s the balance on each card that will hurt. If you have maxed out your cards this will negatively affect your score. And applying for new cards will only throw gasoline on the fire, especially if you start to rack up charges on them.
Start to pay off more than your minimum balance. Credit card companies charge insane rates too. The more you pay off each month will result in you having a lower credit card balance. This is a good thing. When you pay down the balance, in effect you are increasing the amount you can borrow.
If you don’t carry a balance on your cards, you shouldn’t cancel them. Just put them in a drawer and forget about them, even if you don’t plan on using them.
When you cancel a card, you are taking away potentially available credit. This only lowers the amount you could potentially borrow, and will increase your balance to limit ratio. This lowers credit scores, so don’t do it.
Apply for New Credit Cards
The opposite also holds true. If you can increase the available credit available to you, this should help to increase your score. The easiest way is to apply for a new credit card. You, in essence, are adding to your balance to limit ratio.
But don’t go out and start spending more money on this new shiny credit card. Put it away for a rainy day.
Almost all negative credit ratings will fall off given enough time. Even that telephone bill that you never paid 3 years ago, that is sitting on your credit report, will eventually fall off.
Everything that can affect your credit history has a certain lifespan. Usually, it is about 7 years, but could be up to 10 years. This includes foreclosures, bankruptcies, judgments, and late payments.
Not many people are aware that these items won’t impact your overall credit score as time goes on. When you replace these negative items with positive payment history, this goes a long way into improving your score.
However ,after 7 years as these negative items are erased from your credit report, this doesn’t mean you don’t owe that money anymore. Those vendors still have a claim against you.
Another Pro Tip:
If you’re dying to get a derogatory item off your report, then you should proceed by contacting the collection agency or vendor directly. If enough time has passed, they probably will take pennies on the dollar, and in return will agree to remove the items of your credit report. Be sure though that you do get this in writing before you pay them.
Hire a Credit Repair Specialist
You have seen the ads on television and online for specialists that can repair your credit. There is a lot of fraud when it comes to credit repair. And you can do most of it yourself. But if you just don’t have the time, and don’t want to deal with a ton of paperwork, then a specialist can certainly assist you.
In a nutshell here is how they operate
- They will pull your credit report so they can view all of the derogatory items
- They may dispute inaccuracies on your behalf.
- Negotiation with the creditors and collection agencies to have the items removed is another step.
Credit repair companies also have a lot of firepower behind them that you don’t. Among many things, it includes a powerful team of attorneys that do this for a living.
Remember though that if items are accurate, you will also need to employ a strategy of rebuilding your credit.
- Increase your lines of credit
- Make timely monthly payments
- Avoid charge-offs and making late payments
- Add more accounts
What Makes Up The Largest Part of Your Fico Score
If we knew the largest components that affect your score, we could target those sources first to increase your scores as fast as possible. According to Money Wisdom, the two largest pieces comprise 65% of your score.
- Be sure and make your payments on time and avoid late payments. You don’t want any vendors reporting that you’re late to the credit bureaus. You might be surprised just how many points one late payment can knock off your fico score.
- Don’t max out your credit cards. The credit bureaus know what your credit limits are and how much you have available.
- Remember, don’t cancel any credit cards that have zero balances. The bigger capacity you have to spend on your cards, the higher your Fico score will be.
- See if your credit card company will increase your line of credit on your card. If your debts are low enough, they just might. And this will increase your balance to limit ratio, thus increasing your score.
Higher credit scores help you to qualify for lower interest rates on homes, credit cards and help you to borrow money at a reduced cost.
- Pay off your credit cards and increase the balance to limit ratio
- Derogatory items will naturally fall off your credit report over time
- Sometimes it pays to negotiate with the vendors you owe money too
- This can help increase your Fico score
Andrew Reichek is the owner of Rentkidz and helps people buy and sell houses in Houston, TX.