26 Dec Get What You Want
Maintaining a high credit score is the best way to get what you want or need without having the cash immediately available. If we are honest with ourselves, there have been times when we’ve all wanted something we couldn’t actually afford to buy outright. This is where having good credit comes in handy. The challenge is that building credit takes time and consistency.
Anything worth having is worth working for! With all the benefits of having great credit, it would be silly not to begin working towards the credit you deserve and lifestyle that comes with it. With these simple short cuts and quick results, you may just forget how serious your credit concerns were. At the least, you can walk into your New Year 2018 with fresh optimism and perspective.
1. There are five components that contribute to your credit score; Payment History 35%, Amount Owed 30%, Length of Credit History 15%, New Credit 10%, and Types of Credit Used 10%. By focusing on the areas that have the largest impact on your score you will produce the greatest results in the least amount of time.
2. Late payments stay on your credit report for seven years. It’s in your best interest to do everything you can to make your payments on time or even early! Check your score regularly. You want to be aware of anything that should not be listed on your credit report and request to have it removed immediately. This includes cross checking your personal information and other reported items across all three credit bureaus. The sooner you notice these items, the lesser the impact to your credit score. Take advantage of one free credit report annually at www.annualcreditreport.com.
3. Automate your payments. Ok, so let’s just look at the bottom line…credit companies like to see that you are a reliable source of income for them. They want to feel confident that they will get paid! By setting up automatic payments from your bank account you can be sure that your balance is paid on time which, before long, will be sure to give your score a nice boost.
4. Request a credit limit increase. By increasing the amount of credit you have available you create a more favorable credit utilization rate. What is a “credit utilization rate”?…It’s a complicated way to describe a simple ratio, total debt : total credit. You will do best to keep this rate below 30%.
When it comes to credit, time is on your side! Starting a new year, new season, or even just a new day can be viewed as an opportunity to strategize about what changes you will make. Credit cards and installment loans can help your score if you maintain good history. Be careful, however, not to open too many new accounts at once. This will lower the overall age of your credit history and hurt your score. Be responsible with new credit and resist opening accounts for the sole purpose of improving your credit, it is often much less successful than you may think.
5. It is true that paying down your debt is the fastest way to improve your credit score. However, NOT ALL debt is considered equal. If you had the resources to pay everything off right now you probably wouldn’t be reading this blog. In fact, most people work hard for their money and still don’t always have enough for the things we want and need.
Credit is trust that money borrowed and promised will be repaid. We borrow with the promise to pay later. Unfortunately, sometimes we fall behind. In an effort to clean up your credit, you may feel compelled to pay off old debt first or even close accounts. However, without selecting the proper accounts, this can be more like taking a step back rather than forward.
Likewise, closing established long term accounts can have a similar adverse effect. Paying off certain types of collections, installment, or other accounts with very old or inactive items may re-activate these accounts. Once new activity is reported to the credit bureaus, these negative items will re-appear on your credit report, and potentially hurt your score.
6. Seek a personal loan. It may sound counter intuitive to borrow money in an effort to decrease your debt. However, taking out a small personal loan just might do the trick. Because credit cards are considered revolving debt, they impact your credit more adversely than a personal loan from your bank or credit union would. Credit cards also tend to have higher interest rates and more variation in interest rates, meaning your interest may increase over time if you miss a payment, pay late, or any number of other reasons. A personal loan falls under the category of installment debt which has a more gracious impact on your credit score. By using a small personal loan to pay down some outstanding, high interest credit card debt you can quickly bring down what credit bureaus consider “bad debt”, causing a boost in your score.
Get the details on loan approval from the lender or financial institution and do your best to prepare prior to applying for the loan which will appear as a hard inquiry on your credit report.
7. B is for BUDGET! If you don’t manage your finances and spend according to a set budget you may want to consider scheduling a calendar reminder rather than an automatic bank draft. This will keep you on track and on time with your payments without getting you into trouble with your bank.
Prioritize your payments by devising a plan of attack for your interest bearing debt. Resolve to pay off the balance with the highest interest rate first. Pay as much as you can afford on the highest interest accounts and keep other accounts current by making the minimum payment until you can afford to pay more. Show you have your debt under control by keeping your credit balances low and available credit high.
Working with established credit professionals will ensure that you attack the right items in the right way to achieve the credit you truly desire.