Increase your credit score and keep more money in your pocket
By Irel Wong November 2, 2020
If you have anything less than a score of 800 on your credit then you know what time it is, it’s time to work on getting that score up! Fortunately, there are things in your control that you can do to make that happen. Having a good credit score is important to lenders as they use your score to measure how likely it is you will repay back the loan. Companies use this likelihood to approve you for offers, credit cards and loans. Keeping your credit score intact also means you won’t be paying that higher interest rate that comes with having bad credit. You could be keeping more money in your pocket by saving up to hundreds of thousands of dollars depending on your purchases with good credit. Increasing your credit score should be something you take seriously if you plan to buy a car, a house, shop using a credit card or getting some form of loan in the near future. Keep more of the cash you work so hard for and let your credit work for you.
Your credit score is rated by three credit reporting agencies in the United States – Equifax, Transunion and Experian and they are responsible for collecting information on your credit history. They have your personal information such as your name, current and previous addresses, phone number, social security number and your employment history. These agencies collect information about your borrowing history, current loans and debts, payment history and any collection or bankruptcy details. It is important that you check your credit report at least once annually so that all information on your report is correct and factual. Correcting information on your credit report that is incorrect can be the difference between you being approved or denied for credit so make sure you are on top of it. By taking a few of the steps listed below, you can increase your credit score and take control of your borrowing capability.
Order Your Credit Report and Review It Very Thoroughly
The first thing you want to do is order your credit report and review it as rigorously as you can. Your credit report is available to you for free once a year at www.annualcreditreport.com. Go through every detail and make note of any incorrection you see. These incorrections could be hurting your credit score so you want to fix those quickly. Make a copy of those incorrections and write to all three credit bureaus requesting that they be corrected or removed. The bureaus have an obligation to check into your request and provide a response to you within thirty days. Keep track of all communications and follow up if you need to. If you have too many corrections, do not send them all at once to be fixed. Too many adjustments can mean delays and confusion so keep your requests in small increments of three or less each time. You should notice an improvement in your credit score after about two to three months of doing this. It may be a little tedious at first but keep at it and you will reap the rewards after a little while.
Make Payments on Time
A big part of your credit score is your payment history. Make sure you make payments to your lenders as agreed and on time. Do not make any payment late as it will hurt your credit score. If you are unable to make any payment by the deadline, call your lender and ask for any leniency or if they can make some arrangement with you but just don’t leave it unpaid. If you have any late payment on your credit report, call the lender and ask them what you can do to remove it. They may be hesitant but ask them if you pay it in full if they can report it to the credit bureaus as paid in full never late. Making on time payments is a good habit to cultivate. Lenders are quicker to offer you loans and credit cards even if your score is not in the 800’s so be consistent with making payments. One way to make sure creditors are paid on time is to sign up for auto pay. With auto pay, the payment is automatically deducted out of your account to pay the lender. This takes the manual task of remembering due dates and deadlines. Use this option cautiously though as you don’t want to have auto pay when your account balance doesn’t have sufficient funds. This could end up costing you in the long run with your bank account running into negative and you incur bank fees and other charges. You want to have consistent on time payment for a timeframe of at least one to two years for lenders to consider you a good prospect. Work on your payments and keep them on time.
Do Not Take on More Debt Than You Can Handle
Before taking on more debt, make sure you can carry the burden of repaying back the loan. Make sure you take a look at your monthly budget to see if you have enough room to repay that debt. You don’t want to take on too much where it becomes more than you can handle and then end up ruining your credit. This may take some discipline on your part but beware of enticing offers that lure you to purchase things that will overwhelm you financially. There are instances where you will have to use credit to grow wealth but make sure you go into it cautiously and advisedly. While credit is a necessary tool to get ahead, it can also be your downfall when handled poorly. A good advice to go by is – if you can do without putting it on credit, don’t do it. Keep in mind that the more debt you use in comparison to your credit limit, it will negatively affect your credit score. You want to have as little debt as possible. Of course, every situation is different so while you may need to use credit, do not get to the point where you overextend yourself.
Keep Your Debt to Credit Ratio at a Minimum
Aside from your credit score, lenders look at your debt to credit ratio when making decisions to determine your creditworthiness. Having a debt to credit ratio of 30% or less will help your credit score. To calculate your debt to credit ratio, look at your total credit and how much you have used. Divide how much you have used by the total credit to get the ratio and then multiply by 100 to get the percentage. An example of this is: say your total credit is $60,000 and you have used $40,000. To find the credit ratio you would divide $40,000/$60,000 to get .67. Multiply it by 100 to get 67%. In this case your debt to credit ratio at 67% would be too high so it would weigh negatively on your credit score. Make lump sum payments to your credit balance so that it would get below that 30% threshold. Ultimately, your goal should be to pay off all your debts but keep in mind that 30% ratio as you use your credit cards and as you access line of credits.
Increase Your Credit Limit
One way to get your debt to credit ratio lowered is to increase your credit limit. Use this option strategically not to use credit to purchase more things but to have a lower ratio when compared to your usage. If your credit limit is currently $60,000 with a $40,000 usage and you received an additional $30,000 credit, that will definitely help your score. In this case your limit will increase to $90,000 ($60,000 + $30,000) but your usage will remain at $40,000. Your debt to credit ratio will now be $40,000/$90,000 = 44%. Initially you were at 67% so having a 23% drop will boost your score upward. Increasing your credit limit may seem counter to improving your credit score but it all boils down to looking at the mathematical formula of calculating ratios. The lower the ratio, the better it is for your credit score so increasing the denominator will reduce the calculated outcome.
Consolidate Your Debts
When you have a lot of loans, credit cards and debts, you want to consolidate them and bring them together so you can manage them better. Having them separate and individually can be overwhelming and stressful. There are different ways to consolidate your debts but go for it if you are drowning and struggling to make payments. You can apply for a personal loan, tap into the equity in your main home with a Home Equity Line of Credit, borrow from retirement accounts or even apply for lower interest credit. Do this with an intentional plan to pay off debts and free yourself from being overly burdened with loan obligations.
Make sure you do your due diligence in handling your credit. Don’t allow a bad credit to cause you to lose out on money that you should be channeling towards more important causes. Take control of one of your most valuable financial assets now.
Boost Your Credit Score With Experian Boost
You can increase your credit score with Experian Boost by getting your phone bill, electricity bill, television subscription bill and other utility bills added to your credit report. These bills are not considered loan or credit but they do provide lenders insight into your payment activity and show you are responsible for making your monthly obligations. If you make these utility payments, add them to your credit report and get that boost you need. It’s a quick way to get more points fast! For more information on boosting your credit, find out here:
