OK. So you’ve ordered your credit report and seen your credit score. Now you see the cold, hard truth – it’s downright ugly and you wonder if you can really salvage your credit and ever get a decent interest rate on a home or car loan – forget about credit cards!
Take heart! With a few steps and a plan of attack you can improve your credit score and start on the path to recovery. Corporate trainer and credit counselor Bruce McClary of Richmond, VA offers 5 ways to boost your credit score.
Get It Right
Accuracy is the first thing to look at and is the fastest way to boost your credit score. Find and fix any mistakes that could be pulling your score down. Credit scores are based on the information contained in your credit reports. If you are one of those who haven’t seen your credit report in several years, make sure you order a copy of all three reports because each will be different.
Pay Your Bills On Time
Paying your bills on time helps you build and maintain a healthy payment history. Paying your bills on time is the largest factor in determining your credit score (at 35%). This is the best way to rebuild damaged credit. If you want noticeable results try paying your bills on time for 12 months. It will make a difference. If you don’t have a track record that goes back years and years but only a few months then you can get your score back within that 12-month period. If your history goes back further it could take longer but this is the biggest factor.
You can expect information about past-due payments to stay on your report for up to seven years. Your score can still improve as long as you make regular on-time payments.
Get Back – You Are Too Close To The Edge
If you think you are doing everything right, the next thing is to look at the amount of your outstanding credit card debt and your debt-to-credit ratio. If you reduce these debts it can make a significant difference, especially if you are near your credit limit on any of these cards.
You never want to be maxed out and the ideal limit is 35% to 40%. Keeping your debt spread out is better for your score than having all your eggs in one basket.
Next, focus on the amount of outstanding debt – this is 30% of your score. Put together the outstanding debt and payment history account for 65% of your credit score. Pay off your debt rather than move it around. A lot of people like to play the balance transfer balance game. Closing an account and transferring that amount means that you’re increasing your debt ratio.
Here’s a tip: Take the smallest balance and try to pay it off first, while making minimum payments on the others.Then when that balance is paid off take the next smallest one and double up on it, etc. etc. This gives you reachable goals, and psychologically it’s encouraging because you see yourself actually paying OFF the debts.
Commit For The Long Run
15% of your score is determined by how long you have had the credit relationship. This may sound silly, but don’t close any accounts if you plan to shop for a mortgage or other type of loan where you will need a good score. Opening new cards and closing old ones will negatively impact your credit score in the short run.
You want to have a couple of credit cards to develop a credit history, but adding more credit card debt can be dangerous. It’s better to limit your credit cards to two, keep the balances low and pay them off quickly. Be careful using them and equally important is having a savings account to fall back on.
Look Before You Leap
When you apply for a loan or a credit card, lenders pull your credit. These inquiries put a temporary dent in your credit score. The best way is to start your loan search by shopping and comparing rates rather than applying for a loan and deciding later.
Also it is best to do all your shopping within a month’s time. This can be very important. Mortgage and auto loans are counted as one inquiry if they fall within a 45-day period in the FICO scoring.
Inquiries have the least impact on overall score. Inquiries, types of credit and the number of loans play into the final figuring of your score.
Additional note though: If your credit score is significantly bad – 585 or below – don’t apply for multiple car loans or mortgage loans “shopping the rate.”Each credit pull will temporarily take your score lower, and lenders dealing with low credit scores typically charge around the same interest rate so shopping all around town and having your credit pulled is really not going to help you in the long run.
Having a bad credit score does not have to ruin your life. Make a plan to pay off your debts and stick with it! Within 12 to 18 months you’ll be surprised at how much you can significantly increase your credit score with good payment history and lowering your overall debt vs. income ratio!
About the Author:Resources: Clearpoint Financial Solutions
Financial Fitness Experts
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