5 Easy Ways to improve your credit
Lifestyle

5 Easy Ways to Improve Your Credit Score

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5 Easy ways to improve your Credit Score.  The credit score seems to be some mysterious number that gets applied to us as humans.  We don’t realize just how important this scale and number is to us.  It is not so mysterious as one might think.  The credit score is a scale all of us get put on.  In school we had report cards and in life we get the credit score.  The credit score keeps track of the risk we pose to creditors.  Think risk vs. reward.  The higher the credit risk we are to lenders the greater their reward for lending to us. 

You can check your credit score here.  When you check your credit score you can see what has damaged your score and what you can do to help improve your score.  Once you know where you stand you can use these 5 Easy ways to improve your Credit Score.

Here are what the ratings look like in Canada:

  • Excellent: 800 – 900 
  • Very Good: 720 – 799
  • Good: 650 – 719
  • Fair: 600 – 649
  • Poor: 300 – 599

In the United States the credit score range is from 300 to 850.

A very good credit score (720 or higher) makes it easier to acquire more credit when you need it, apply for favorable interest rates, and if you are a renter – it can be easier to rent a nicer property, or any property for that matter.  A good credit rating can even get you better utility rates which saves you money each month.

5 Easy ways to improve your Credit Score.
Credit and banking cards.

Let us get into the 5 Easy ways to improve your Credit Score:

1.  Always pay your bills on time.

This comes down to reliability.  When creditors investigate your credit rating probably the number one factor they consider is how reliable you are at paying your bills on time.  We are not even looking at your existing credit yet.  One could think the penalties which cause a lowering of your score start with paying your existing bills late. Have a look:

  • A 680 credit score → a 30-day late payment can drop your score by 60 to 80 points.  On the other hand, a 90-day late payment can drop your score 70 to 90.
  • A 780 credit score → a 30-day late payment can drop your score by 90 to 110 points.  In contrast, it can drop 105 to 135 points if you have a 90-day late payment.

Here’s how to improve your credit score in 30 days: Go Clean Credit

Examples of what is included here are your cell phone bill, rent, and utilities.  There are tools that can help you with this.  If you use your credit cards to pay these bills then you are automatically keeping up with regular payments to the credit card companies as well.  And we will get to credit cards further in the article.  

Here are a few tips to help you pay your bills on time:

  • Keep a handy list of your monthly bills – Your electronic calendar is a helpful tool for this – and sets reminders.
  • Know the due dates for your bills.
  • Create a budget and follow it with diligence.
  • Don’t spend money that is set aside for your bills.
  • Always pay something to your bill – even if it is only $10.00.
  • Set up automatic payments.

2.  Low Credit Balances.

Creditors like to see a small percent of your total available credit used.  The industry calls this your credit utilization ratio.  Essentially the creditors look to see how much of your available credit you are using.  This ratio is the amount of revolving credit you are currently using divided by the total amount of revolving credit you have available.  As an example, let us say you have $20,000 in available credit over 4 credit cards.  You owe a combined balance of $12,000 ($3,000.00 per card) your CUR is 60%.  Lenders use this ratio to see how dependent you are on your credit sources.  And of course, this leads to ability to pay your creditors which is a primary concern.  Another factor this ratio illustrates to lenders is your level of responsibility.

The CUR shows what percentage of your credit you are using.  This also shows two other factors: how much of your income goes to service debt and how well you are managing the credit.  If you have a low ratio the creditors understand it to mean that you are not spending beyond your means and that you responsibly manage your credit options.  If you carry a balance on your credit cards the optimal CUR is a maximum of 30%.  So keep paying the entire balance of your cards and don’t over use them, or abuse them.  Having credit is a privilege and can be damaged quickly, it can take a long time to get back to the 700 territory. 

3.  Don’t Cancel your credit cards.

This is a big one and something this author discovered the hard way.  Many years ago, I thought if I wasn’t using a credit card I should cancel it or not renew it when the card expired.  The same goes for a line of credit.  It is a good practice to still use them, just pay them off each month.  We will also add here that it is best to have credit cards that do not require annual fees.  Closing cards affects your CUR.  You may owe the same amount on your revolving credit but now because you closed the unused card your CUR increased as you no longer have the available credit amount to keep the ratio low.  Another factor to closing a card is the Credit Bureau does not show why the card was closed.  The conclusion is then drawn that it was closed for negative reasons.

5 Easy ways to improve your Credit Score.
Paying bills by due date.

4.  Remove Blemishes to your account.

One can remove a collection and late payments report on your credit rating.  Late payments and collection situations leave their mark on your credit rating for years.  Improving your credit score takes knowledge, discipline and persistence.  As shown earlier, a score in the high 700s shows there are zero late payments.  If you have let’s say a 30-day late payment within the last 12 months or even a 3 month lay payment 2 years ago your score will be in the 600s.  So always be paying.  The creditor doesn’t like this but even if you pay less than the minimum payment they cannot report a late payment.  They won’t let you get away with this for very long so please make your payments on time.  On credit cards always make more than the minimum payment to save on interest. 

Now here is how to request to remove a late payment:

You are able to call your creditor and request the removal.  It is that simple.  Do this after you have been making on-time payments for several months (make this a habit – it will help you).  Financial responsibility with timely payments keeps you out of credit score trouble and also helps you get out of the trouble you got yourself into.  The second option may require you to give a little to the creditor by providing them a little payment security by agreeing to automatic payments.

Now to the collections removal: when you have a credit product in collections only paying it off doesn’t improve your score.  The debtor needs to have it in writing from the collection agency that the debtor will “pay for delete” and then work on getting the account deleted. The pay-for-delete is an official agreement between the debtor and the collection agency.  The collection agency that reported the delinquent account has the power to contact the credit bureaus and have the collection account erased from your credit report.  Keep in mind this deletion does not remove historic late payments to that account.   Once you pay a collection agency your credit score will be updated to show the paid status.  Remember to get everything in writing from a collection agency.  They cannot back out of a commitment if it is in writing.

5.  Regular Credit Report Inspections.

In Canada the Federal government states that about 20% of consumers have errors on their credit report that negatively impact their credit score.  Second, Canadians are entitled to one free credit report per year.  There are companies that offer free monthly reports.  When you check your credit score it is deemed a soft inquiry and will not have a negative impact on your credit score.  You are able to dispute errors you find and request that they be removed.  Credit bureaus will investigate your claims and will respond to you within 30 days.

In conclusion:

Repairing your credit rating takes time and will be a huge benefit for you.  Following these 5 easy ways to improve your Credit Score will assist you in the process.  You can do it and the damage caused by bad situations and poor choices can be repaired and undone.  Paying your creditors and limiting new purchases will always improve your credit score.  Two other options that will help you get your credit back on track is to get a debt consolidation loan or get a secured credit card.  These two options will help you get on a payment schedule and get those pesky balances down to manageable levels enabling you to adopt the financial discipline and responsibility that creditors are looking for. 

 

You can repair your credit.  If this is a goal you have please feel free to download our SMART goal setting worksheet.  Seize your days, control your ways and be more than a conqueror.  

 

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