Having a good credit score can be important to your financial health. It keeps money in your pocket by getting lower interest rates among other benefits. We’ll give you tips to boost your credit score.
Having a good credit score can be important to your financial health. It keeps money in your pocket by getting lower interest rates among other benefits. We’ll give you tips to boost your credit score.
Now I should say right at the start that some of these aren’t recommended … but I’ll mention them because it’ll help you understand how your credit score is determined.
The first way to boost your score is to have a strategy for paying off your balances.
KEEP BALANCES BELOW 30%
Ideally, you pay them off in full every month. But if you can’t do that, make sure you never use more than 30-percent of your available credit on any revolving account, such as a credit card. Once you go over 30-percent, your score begins to fall.
You want to make your payment before the issuer reports to the credit bureaus each month. You can google to find out when that is.
For example, Discover reports to all three credit bureaus, Experian, Transunion and equifax, three days after your closing statement for the month. An easy way to make sure your payment is recorded is to make two or more payments throughout the month.
Keeping your balance below 30-percent is the second most important factor in determining your credit score. But the single most important fact is to …
ALWAYS PAY ON TIME!
Nothing impacts your credit score as greatly as paying on time.
If you’re ever more than 30 days late, call the creditor immediately and explain your situation. Ask if they’ll delay reporting the late payment. They might, but there’s no guarantee. Then make the payment as soon as possible.
DISPUTE ERRORS
Check your credit reports regularly. Get all three reports for free at AnnualCreditReport.com. If you see an error, you can dispute it at the appropriate credit bureau.
DEALING WITH COLLECTION AGENCIES
If you have an account that’s gone to collections, your score has probably suffered significantly, and it will continue to be affected for seven years. But dealing with collectors properly can have a big impact on your score.
Call the collection agency and give them a plan for paying it in full or making regular, and faithful monthly payments.
When you’ve paid off the account, ask the collection agency if they’ll stop reporting it to the credit bureaus. If they agree to — and that’s a big if — it will greatly improve your score.
BUILDING CREDIT WITH LITTLE OR NO CREDIT HISTORY
You can begin by becoming an authorized user on someone else’s credit card. For example, a parent can sign up online with the issuer to make a child an authorized user on a card. The child then gets the benefit of the parent’s longer credit history and good payment record.
But you can also get a secured credit card. You would put a deposit of, say, $500 on the card. You can then use the card up to that limit. But don’t. Instead, make one small regular purchase each month and pay off the balance in full. Your credit score will improve month by month.
You can also boost your credit score by making your rent and utility payments on time. Landlord and utilities don’t usually report to the credit bureaus, but you can subscribe with a rent reporting service to have it done.
DON’T DO THIS:
Here are a couple of strategies that we do not recommend. First, you can raise your credit score by getting an increase in your available credit from your card issuer. That would improve your score because it lowers your credit utilization, which makes up 30-percent of your score. A better way to achieve the same thing is to simply pay down your balances.
You could also add different kinds of accounts. For example, if you don’t have a car loan, if you finance a car, your score will increase because you have a greater credit mix. Your credit mix makes up another 10-percent of your score. But it’s just not wise to take on debt to improve your score. So don’t do it.
On this program, Rob also answers listener questions:
How should you approach investing if your spouse is fearful of investing in the stock market?
Would a mortgage loan modification have an impact on your credit score?
When does it make sense to take money out of an annuity and invest it elsewhere?
What’s the difference between the FDIC protection for bank account funds and the federal protection for credit union accounts?
How do you unload a financed vehicle when you’re overextended financially?
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