You won’t have to jump through as many hoops when you have a high credit score. This is why it’s so important to build a good credit score and maintain it overtime. Having an excellent score is the aim but yours doesn’t have to be perfect in order to be treated better by lenders…catch my drift?
What is a good credit score? At least 700 points and up, while an excellent credit score is 800 and up. Most people will usually have a credit score of around 630 – 750.
When you have a higher credit score you can do the following things: Have more power when it comes to negotiating, pay lower interest rates on credit cards and loans, get approved for better apartments & houses, avoid paying deposits on things like cell phones, utilities etc.
You also won’t need a co-signer when you have a good credit rating. It’s less of a hassle so keep an eye on your credit score!
There are no short cuts when if you want to raise and get a higher credit score.
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What is your credit score used for?
Your credit score is a three digit number that helps lenders decide how likely you are to repay them if they grant you a loan or credit card.
The higher your score the more likely you are to qualify for lower interest rates.
Most credit scores take into account things such as: Your payment history on loans, bills and credit cards. How long you’ve had your accounts open, how often you apply for new credit and the kinds of accounts you have.
To raise your credit score all you need to do is a few simple things:
- Get your credit report
- Pay all your bills on time!
- Do not close old accounts
- Avoid opening too many accounts
- Keep your credit balance low
- Setup payment reminders
- Don’t let them take you to collections!
How To Raise Your Credit Score:
1) Get your credit report !
Start by checking your FICO® Score.
You would be surprised to find out that most people have never requested a copy of their credit report! I mean they know what their credit score is, but they have never looked at the report in detail!
You can check your credit report with three credit reporting bureaus (EquiFax, TransUnion, and Experian). It’s important to request your credit report at least once every couple of years so that you can check for any errors.
Consumer requested credit inquiries do not negatively reflect on your score so feel free to ask for your report.
It’s important to look through your report and make sure that everything on your report is something that you remember. People make mistakes and credit reports are no exception. If you find a mistake on your report, well…- report it!
2) Pay your bills on time!
This is really important if you want a better credit score in the long run. Pay your utilities, cell phone, rent, car payment, student loans etc. on time!
The companies that you deal with such as your cell phone carrier report the payments that you make to the credit agencies.
So make sure that you are keeping up with your payments. Late payments and overdue accounts look bad on your profile and can negatively affect your credit rating.
If you are behind on payments it’s important to work on bringing your accounts up to date. Late or missed payments stay on your credit history for a time of seven years.
Overtime the old missed/late payments will not be as relevant on your report. Old late payments have less of an effect than more recent ones.
3) Do not cancel your oldest credit card
Your oldest credit card has the most history so if you are planning to cancel your card, – make sure not to cancel the oldest one! Your payment history will go along with it if you do that!
If you have a card that is 5 years old and another one that you’ve had for 2 years,-it’s best to cancel the 2 year credit card if you are deciding between the two.
A credit card doesn’t just go away because you cancel it. Your cancelled credit card will still show up on your credit report.
4) Avoid applying for new credit
Credit card companies do a hard credit inquiry everytime you apply for a new card.
Hard inquiries negatively affect your score and having too many of them can affect you in a negative way. This hard credit check usually stays on your report for two years.
Opening up a new credit card is unnecessary and will not help your score. Having too many credit cards (think 4-5) can also negatively affect your credit rating, so keep an eye out for that!
5) Keep your credit balance low
Pay more than the minimum required if you have any amount outstanding on your card.
What is credit utilization?
Your credit utilization counts alot towards your score. This is the number that you get when you add up all your credit card balances at one time then divide them by your total credit limit. For example, if you usually charge around $1500 and your credit limit across all your credit cards is $5000 then your credit utilization is 30%.
Lenders want to see atleast 30% and even lower. A low credit utilization shows lenders that you know how to properly manage your credit.
A low percentage also show that you haven’t maxed out your credit cards. People who have a low credit utilization tend to have a better credit rating!
It’s best to pay your balance down to at least less than 30%. Carrying a balance that’s 50% or more of your maximum does not look good on your credit score.
The best thing of course is to just pay off the entire balance on your card each month and avoid paying interest in the first place!
6) Setup payment reminders
Sometimes even if you want to pay all your bills on time, -you can miss paying one or two bills and end up with late payments.
Put your bill payments on pre-authorized debit so that the amount due comes out of your bank account each month.
The other option is to setup a payment remind via tools such as Google Calendar and your cell phone calendar!
7) Avoid going to collections
If a company threatens to take you to collections it’s important to make contact with them and talk to them right away. See if you can negotiate and make payment arrangements etc.
You don’t want to go to collections because once you do, this will be on your credit report for a number of years to come.
Having bill collectors call and harass you is such a headache. I have was sent to collections when I was 20 years old and I can tell you firsthand that it’s extremely STRESSFUL!
How Long Does It Take To Improve Your Credit Score?
The most important thing you can do to raise your credit score overtime is to pay your bills, loans and credit card on time every month.
The things that negatively affect your score can stay on your credit history for a certain amount of time.
- Public record items such as bankruptcies can stay on your record for around 7-10 years.
- Hard inquiries can stay on your report up to 2 years.
- Delinquencies such as missed payments, late payments, collections etc. can stay on your record up to 7 years.
*BY THE WAY*: I don’t believe in companies that make you pay a certain amount of money in order to “improve credit your score”.
There is really no short cut if you want a better credit rating. Pay your bills on time, do not miss any payments and be aware of any high credit usage.
Overtime you should start to see a positive difference in your credit score (as long as you are consistent in making an effort). It’s important to know that it also takes time and patience.
If you want to understand your credit score better and how to manage your money in general then I would recommend that you read the following books: Your Score by Anthony Davenport and the Total Money Makeover by Dave Ramsey.