4 Steps To Boost Your Credit Score
By: Ian Golightly MBA
Your credit score defines your creditworthiness to lenders, determined by your credit history. If you are just starting to build your credit or fixing a damaged credit score, you have some work ahead of you. I wanted to be honest that building your credit score is hard work and will take time, but the rewards are worth it. Luckily, by following these 4 crucial steps, you’ll start to build your credit score over time.
Pay Bills On Time:
The most effective step to build your credit is to pay your bills on time. If you ignore your bills and end up in a collections agency, your credit will suffer. I know it seems silly to read that statement, but millions of people end up in collections every year because they don’t keep up with their bills. If you are applying for a loan, lenders are looking at your abilities to pay them back.
If late payments are made, your credit card score will decline, so make sure you pay all of your bills on time. If you are in collections currently, one thing you can do is call them and settle a plan with them. Every collection agency is different, but I know they have a settlement process. It’s always best to come into an agreement instead of being stuck in a collection agency. Being in a collection agency is a predictor of future bankruptcy. Filing for bankruptcy should always be the last resort since it hinders your credit for at least 10-years.
Credit Card Smarts:
Have you heard the term’ credit utilization ratio,’ and did you know it affects your credit rating score? The calculation is derived by adding your credit card balance in a period and then by calculating the total of your credit card limit. Your 12-month credit card statements are also taken into consideration. Typically, lending companies prefer their customers with 30% or less on their credit utilization ratio.
So what does a low score mean?
Individuals who have a lower rate are perceived as better credit managers. Don’t worry if you’re higher than 30% because it can be fixed over time.
Credit Checks Under Radar:
Did you know that 3 credit bureaus individually release your credit report every year? These three bureaus are Experian, Equifax, and TransUnion. Historically, these 3 bureaus have been criticized by the public due to their lack of accuracy on consumer credit history. As a Realtor, I’ve worked with clients who had well-paying jobs, but they’ve destroyed their credit. One strategy that I use is to look at their credit report before applying for a mortgage.
Typically, I request my clients to get all 3 credit histories from these credit bureaus or at least two of them. Then I compare each one and the ones that don’t match up; I ask my client if this is true or not. If it isn’t, I’ll have my client file a dispute for inaccuracy. Once it is cleared, I tend to wait for 30-days after it’s deleted to have my client check their FICO score. If you have something incorrect with your credit report, it is best to dispute that as early as possible; since your credit report affects your credit score.
Zero Balance With Collections:
It is always best to pay off debt if you have the means rather than rolling it into a new credit account. However, so many credit card companies will allow you to roll in your debt with sometimes no interest for 18-months. Depending on how bad your credit score is, you may not have the option. You’ll just want to keep in mind that you should be almost positive that you can pay it off with the agreed terms since credit cards have high-interest rates.
Credit card companies can be used as a tool to leverage, but don’t forget they are also a business. Typically the consumers who have a lot of debt that roll over into these credit card account are what the credit card companies are looking for.
Because they’ll make money off the interest over a period of time.
If you plan to pay collections off, you should consider requesting that they do not report the debt to the credit bureaus. Even though a slim chance collection would agree, the answer is no until you ask.
By keeping up with these four activities for your credit, I’ll rest assured that you are on your way to increasing your credit score. The process is a marathon, so don’t expect your credit score will be fixed in the next 30 days. You should expect improvement, but it will not be a quick fix. If you don’t want to go down this road, you must pay your bills on time.