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How To Improve Your Credit Score
Credit scores are often referred to as the magic number because they can have a significant impact on your ability to get approved for loans, credit cards and mortgages.
Your credit score is also important because it affects how much you pay for everything you buy, from car insurance to a new fridge. That’s because if you have a low score, you’ll have to pay a higher interest.
There are many ways to work on your credit score.
The easiest way to improve your credit score is to pay your bills on time. For example, if you get a monthly credit card bill, then you should pay that bill on time. If you don’t pay your bills on time, then you will start having late payments and this will have a negative impact on your credit score.
You can say that you need to pay your bills on time because it is a contract, and if you don’t pay your bills then you are breaching the contract. This is especially so if you have accepted credit cards in the past.
Another way to improve your credit score is to only have one card. The thing with having more credit cards is that you may not pay any attention to the credit cards that you have. You will forget to pay on time and this will be a huge mistake.
Check Your Credit Score
To begin, check your credit score and make sure that you have a clean credit report.
Your credit score is the most significant factor in the financial institutions’ ability to determine the likelihood of you paying back as agreed. By law, credit bureaus can’t have any information about your score in their credit reports without a corresponding public record. Issues like late payments, bankruptcies, court judgments, or other derogatory marks like foreclosures are considered public records.
What is a good credit score? If you want a good interest rate on your mortgage and car loan, and want to save on insurance and utilities expenses, you need to have a credit score of least 660. Companies that you already have credit cards with may require scores of 700 or more for you to be eligible for their best rates. It may cost less to go on a credit monitoring program and clean up your credit report 12 months before you want to apply for credit.
Fix Credit Problems
Your credit score is used by creditor banks for evaluating your loan applications. Creditors rely on your credit score to see how risky it is to lend you money. If your credit is bad, you will find it difficult to open a new line of credit, get approved for a credit card and even get a car loan. If your credit score is excellent, you will be approved for a loan quickly and may even get a lower rate on your loans.
Now, repairing your credit score is not easy. It is going to take time and perseverance. I am going to share with you the exact steps that you will have to follow to get to a higher credit score. When you follow these method, I will not only improve your credit score, but I will also take you to the same place as many of my past clients. So, let’s get started.
Run Up the Score
Before we get get into the details, let’s make it clear that increasing your credit score is not a one-size-fits-all task. While some credit score improvement is directly tied to your own actions, other influences include market fluctuations, shifts in the way the scoring model is weighted, and more. Therefore, one of the predominate keys to credit scoring success is to establish a good credit score foundation and then to do what you can to improve.
Most people don’t even know what a good credit score is, so the first challenge is to figure that out. Once you know what a good credit score is (you have to know the starting point), you should figure out what the credit factors are – what scores touch what factors and what things you can do to increase those scores.
Kevin is a prime example of why you should always do your research before taking any financial advice from a credit repair company. We initially met Kevin when he was getting this free service and we were just getting started. When we first heard his story I (Shelley) looked at Kevin and started crying. I could not believe how terrible his situation was because of the money he freely gave to credit repair companies who made promises they could not remotely deliver and never will. Seeing Kevin’s life change was a dream come true because we are on a mission to educate and protect people from companies like the ones Kevin used.
We took a looksie under the hood and then told Kevin what we charge, gave him a second opinion and even had to tell him that some of the credit repair companies he was working with were not going to help him. It was not easy to tell Kevin the truth. It’s very rough talking to someone who is in tears and extremely upset and angry. But we got through it and he made the decision to get the help he needed. After we gave a few options to Kevin, he chose to fly in from Iowa and stay with my husband and I on our couch because we are much closer to his credit report credit bureaus in Ohio than from where he lives in Iowa.
What I Learned from Being Denied for Credit Cards
Last week I was denied for a new credit card.
I was shocked.
I mean, I know I’m not credit score superhero, but I’d like to think I’m at least a superhero enough to qualify for some cards.
The credit card company didn’t tell me the exact reason why; she just said something about needing to build my credit history.
It made me wonder, just how long would it take to increase my credit score from 585 to good enough?
In late 2010 I pulled my Experian credit report and my credit score was 585.
I had recently moved across country and while I didn’t specifically lower my credit score, I didn’t do anything to increase it either.
Then last week I learned that my credit score had actually gone down to 584.
The only thing I could figure is that since I’d moved, my credit card company must have had their records updated – and my new address was listed as a non-residential P.O. Box and therefore my credit score must have previously suffered.
Since moving into a residential street, my credit score should have gone back up.
How a Secured Credit Card Works
A secured credit card takes you by the hand and guides you through all the steps to rebuilding your credit score.
This is a very pleasant and positive way to start your credit journey. It is built on the premise that one needs to take small steps.
Simply put, a secured credit card isn’t a good deal for your bank. They will make a small amount of money from you, and you will make a lot of money from them.
That’s why a secured credit card does not require credit score verification and a perfect credit score is not a prerequisite for applying for a secured credit card! That’s because the "credit score" of your security deposit decides whether you qualify for one and, if so, how much credit you’re qualified for.
The primary purpose of a secured credit card is to help you build your credit history. In effect, it’s a slow-growth mutual fund for your credit history. You can use it to pay for any and everything you want and every month, the card issuer will deposit the balance remaining after a predetermined period of time (typically 30 days) into a savings account of yours. Not all secured credit cards pay you interest on your daily deposits.
How To Maximize the Benefits of Your Secured Credit Card
Raising your credit score is a goal for nearly every American. It can be tougher than you think – but luckily, you don’t need to be rich or a genius to achieve it. Let’s face it: the process of raising your credit score can be daunting. But the good news is that there are dozens of ways to improve on your credit score. Some of these strategies are easy to implement and offer major benefits. In fact, some methods work well enough to raise your score 100 points or more in a matter of weeks.
The key to effective credit score improvement is to find the credit score improvement strategies that work for you and to implement them consistently. One of the easiest ways to raise your score is to take advantage of the convenience of a secured credit card. But, you should consider taking it to the next level and maximize it by using it strategically and knowing how to use that credit line.
If you’re looking for a quick and easy way to maximize your credit score gains, you may want to consider a secured credit card. A secured credit card works as a normal credit card in that you can use it to make purchases, pay bills, etc. However, the creation of a credit history is contingent on the use of a security deposit.
How I Raised My Credit Score Over 100 Points
Raising your credit score is probably the easiest thing you can do to improve the financial side of your life. When you raise your credit score, you get access to more financial resources and better credit deals.
That means you can buy a house instead of renting, you can buy a car for less money, you can get money for your business quicker, and get cheaper financing for your projects.
It’s not hard to raise your credit score. It’s just a matter of making a few small changes to the way you handle your credit. Here’s how I did it:
Step 1. Get a written copy of your credit report from each of the big three credit bureaus. You can get one for free each year from Equifax, Experian, and TransUnion, so take advantage of this benefit and order one right now.
Step 2. Get your free credit score report from Credit Karma. The free credit score you get from the other three bureaus is based on things on your credit report like credit card accounts and loans. Credit Karma gives you a score based on the information in your credit report, and this gives you a more comprehensive picture of where you’re at from a credit score point of view.
What My Improved Credit Score Allowed Me To Do
When I started making extra payments on my credit cards several years ago I knew that I was doing the right thing. I was feeling good about taking control of my debt and getting rid of those nasty monthly credit card bills. I was also happy about building a solid credit report and credit score.
What I didn’t know was that each extra credit card payment I made was going to open up a world of possibilities for me. I didn’t know that by faithfully making extra payments I was going to be able to do the things that I have always wanted to do and have the things I have always wanted to have.
What My Extra Payments on My Credit Cards Allowed Me to Do
I’m going to list quite a few things that my paid down debt allowed me to do but these are just the highlights…
I was able to move into my own place and I have never been happier. I have a great little studio apartment in the city where I can walk to work and where I can be as loud as I want as I can stay up late at night with the windows open.
Unlike before, I could actually visit my family members that I hadn’t seen in years. I met so many members of my extended family that I had never seen. I was able to travel to different parts of the country and attend several family reunions.
Why You Should Let Your Kids Get a Secured Credit Card
There are two major credit bureaus in the United States: Experian and Equifax. The system is designed to give each major credit bureau different copies of your credit history. The idea is that if they have different reports they can cross check them and correct errors more quickly.
As a result of this quirk, if you completely destroy your credit, when you start to repair your credit there will be some of the negative effects left on one, but not both, credit reports.
Let’s say you’ve made garbage credit decisions like maxing out a bunch of credit cards, constantly charging late, and paying only the minimum. This is the sort of behavior that is going to discredit you with the credit bureaus. If you’ve done this to yourself, it makes it a bit hard for a credit repair company to just come in and fix things because, well, some of the damage is already done.
How to Make a Secured Credit Card Work For You
Your credit score is the most important number in your financial life. This single number determines the loan terms, interest rates, and insurance quotes that are available to you as you plan your future. It measures if you are likely to be able to make your loan payments, and when you will finally manage to save enough money to buy a home, or even buy a car. Your credit score also has a big impact on your ability to get favorable interest rates when you finance your education or your wedding, or even rent an apartment. The importance of credit scores is obvious in all aspects of our lives.
If you want to improve your credit score, you should be aware of three critical factors that affect your credit score. These factors are:
Your Ability to make Interest Payments. This is measured by examining how you have handled paying your past interest charges and by examining your history of paying your bills on time each month. If you have debt and you can make your payments on time each month, your credit score will increase. If you are having trouble paying your debts, the
Step 1. Learn Your Current Credit Score
You wouldn’t go on an important trip without first checking to make sure your truck was in good working condition and had plenty of gas, would you? So why would you lose thousands trying to buy a new car, pay off credit cards, or get a mortgage without first knowing your credit score?
To verify your score, you need to contact the three largest credit reporting agencies in the United States (Equifax, Experian and TransUnion). In fact, few people check all three, and therefore get an inaccurate read on their credit situation. Here’s how it works…
Choose the three vendors whose product or service you’ve purchased over the past 12-months or intend to in the next 12-months.
Get online, and do a free credit check with each company. Choose the one you like, and ask for your credit score.
Talk with the representative to get a clear understanding of what the figure means (i.e. 760 is a good score, etc.).
If they’re willing, have them send you your official credit report as well. If that’s overkill, ask for your TransUnion or Experian credit reports.
Check the information they have on you, paying close attention to your liabilities. (Common items are loans histories, credit cards debts, and revolving lines of credit).
Step 2. Research secured credit cards
Secured credit cards are designed for people with bad credit. With a secured credit card, you place a security deposit into a separate account as collateral against the credit card debt. The card issuer profits from interest paid by the credit card charge-offs and late fees.
You can find secured credit cards with low interest rates and short pay-off periods. When applying for a secured credit card, you will need to provide proof of employment, an active bank account and a place of residence. The secured credit cards report to the major credit bureaus, so you will be able to add an active line of credit to your credit history.
Step 3. Read the terms and conditions, then sign up for the right card
It’s a good idea to know what you’re signing up for before you sign on the dotted line. When you read the card’s terms and conditions, you’ll know the cards that are right for you. That way you have the best chance of improving your credit score as quickly as possible.
It pays to budget. Knowing your budget can help you focus on the things that really matter – not just the ones that can get you the most rewards.
Remember, improving your credit score doesn’t mean you have to spend more. In fact, many of the steps you’ll take to raise your score will probably save you money. The results might even surprise you – especially when it comes to your gas bill.
While you’ll want to do most of your spending with the cards that reward you the most, there will definitely be times when it’s worth spending money with a card that gives you less reward points. Just remember to always pay off your balance on time.
Step 4. Put down a cash deposit you can afford
When you buy a house, your good credit score will get you the best interest rate. I’m talking about a really good interest rate. Approximately the same as your credit union offers now.
This is a night and day difference compared to the artificially inflated interest rates you’re currently getting.
If you have poor credit, however, you probably have regular credit card debt. Guess what? You’re actually paying a higher interest rate than you deserve.
So, what’s the solution?
If you have a poor credit score, quit charging things and start paying things. Start paying off your credit card debt now. Start by putting down just one of your credit cards. Put down the one you’re most likely to start charging again. Get rid of the temptation of charging something by putting a 90% of the card balance down as a deposit. Get rid of the card and the temptation at the same time.
If you successfully paid down that card in less than six months, then put down another card. Again, get rid of the temptation and the card at the same time. And if you can’t get rid of it, the card won’t hurt your credit score until you charge something with it.
Step 5. Use your secured credit card sparingly at first
Secured credit cards are available for people with bad credit. They are secured by a cash deposit you've made, so you'll have to pay back what you use as well as fees.
If you pay on time, your credit limit is gradually increased so that you can build a positive history. If you pay your bills on time for a year, you could get an unsecured credit card. So the secured credit card is a good way to get back on the credit wagon without having to start from scratch.
Although secured credit cards are a great way to build your credit history if you've been in credit card debt in the past or if you have a low or bad credit score, they have their disadvantages too. One other thing you need to be on the lookout for is identity theft. I've read of cases where people have obtained credit cards in other people's names. And there have been some cases where people who obtained credit cards this way went on lavish shopping sprees spending thousands of dollars on merchandise.
Personally, I would want to limit the time I used my secured credit card in the beginning. I wouldn't want to get into debt again, nor would I want anyone stealing my identity or using my security deposit against me. When using your secured credit card, watch for double charges. You don't want to pay for something twice.
Step 6. Monitor your bill closely, and pay your secured card off frequently
(daily or weekly)
It goes without saying that your credit monitoring service provider is not responsible for spotting fraud or putting an end to it. It’s your job to check for anomalies and balance charges against your actual spending. Read all bills carefully. Credit monitoring services can also help you spot bogus accounts or accounts with a fraudulent balance you’re being held responsible for.
Also, keep your eye on your secured credit card bill and balance. If you regularly pay your bill and have high credit limits, then it’s less likely that you’ll notice fraudulent transactions early. If you pay your bill infrequently or you have low credit limits, then your bank is more likely to catch bad debt on your card.
You can also opt to have your payments automatically debited from your bank account, as long as your bank charges no fees for using this service … or charges much less than the standard credit card service fees.
I know many people who use automatic bank payments to pay off their bills. It’s super convenient, but just be sure to check your account balance and monthly statement often.
In Summary: Tips To Improve Your Credit Score
The Bottom Line
Having a low credit score as a younger person can hurt your chances of getting approved for a car loan, an apartment lease, and a job. It takes years, and a lot of work, to raise your score to the high 700 or even the low 800s.
About the Author
Jeanne Hopkins has been helping thousands of consumers get their credit score up for over 10 years. She started the Consumer Credit Counseling Service of Delaware (CCCS Delaware) and has been the Government Contractor for the Delaware Volunteer Income Tax Assistance program for the past 5 years.
She combines real life experience with the knowledge that she has gained from years of working with consumer credit issues.
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Credit reports and credit scores shape our financial lives. Virtually every major financial decision we make takes them into consideration. Most major creditors (including banks, credit unions, and auto finance companies) use credit reports and scores to determine whether or not to give us the money, on what terms they will give it to us, and how much they are willing to charge us in interest.
Credit reports and credit scores have a large impact on our personal finances. Credit reports and scores are largely based on our credit history, or the number of times we have borrowed money and repaid it to the satisfaction of creditors. The three major credit reporting agencies (CRA) of Equifax, Experian, and TransUnion are the main sources of our credit history and, therefore, much of our credit score.