Credit reporting agencies are tight lipped on the specifics of how a credit score works. While the specifics are shrouded in secrecy the general knowledge of do’s and don’ts are fairly intuitive and readily available. What it really boils down to is this: Are you the type of person that can pay back a loan? Do you have dangerous signs in your debt and spending behavior that would indicate you aren’t reliable? If you behave lenders will be falling all over themselves to get your attention.
While a good credit score can save you thousands in interest and penalties it’s probably best not to use it. But that the irony, when you don’t need or want credit, lenders want you more than a T-bone steak at the pound.
Easy steps to improve your credit score –
- Pay your bills on time (everytime) – This isn’t rocket surgery =). If you can’t pay your bills on time no one will want to lend to you, not even your friends.
- Call your creditor if you know you’re going to miss a payment – Many times a creditor will work out a special deal for you, they won’t slap a late payment fee on you, and most likely you’ll come out unscathed. If you plan on missing multiple payments you should call for sure. Just like in real life faceless corporations like to know what’s going on.
- Check your credit report regularly – Everyone can get a Free Credit report from the government every year from each of the credit bureaus. TransUnion, Equifax, and Experian all have to give you one every twelve months for FREE. Read more here.
- Start and/or maintain your credit history – If you’ve never had a credit card, loan, or any other type of credit building device get one. You can sign up for a credit card and start building now. If you’ve recently gone through a bankruptcy get back on the saddle with a poor credit credit card. If credit cards were your down fall then be careful.
- Shop for a loan in a short amount of time – If you’re looking for an auto loan or a mortgage try to do it within a two week period. Try to avoid looking for a loan over extended amounts of time. The reason for this is that you are pardoned if you get a number of similar credit checks for the same thing. If you stretch it out every time you get your credit pulled it will count against you. So the moral of the story here is get your credit checked in the window of forgiveness.
- If you have outstanding debt or problems in your credit report fix it- right now! – You might be surprised by what you’ll find in your credit report. A five dollar bounced check when you were a freshman in college might be lingering there waiting for you. If you see something like this fix it quickly. The contact information for the company responsible for the bad mark will be there for you to call. Call them and have them remove the issue A.S.A.P. Don’t wait until you actually need the loan to worry about problems like this.
- Have a good mix of different types of credit – Don’t just do credit cards or auto loans or department store credit. Try to maintain a healthy mix of credit and pay everything diligently. Having one or two credit cards that you actively use will be as good or better than working with fifteen. Try diversifying your credit if possible.
- Give yourself time – It takes time to build your credit score. Any changes you make to improve it will likely take months and sometimes years before the full impact is known. If you have a big purchase coming up pull your credit report now and be aware of any problems you might have.
- Protect against identity theft – especially from friends and family – Studies have shown you are much more likely to be victimized by friends and family than by some stranger online. Your kids, siblings, parents, acquaintances, or family members are more likely to steal your identity than anyone else. So protect your private information from prying eyes and keep passwords and other private information locked up. Buy a shredder and be careful. It’s also interesting to note that homicide and rape are also more likely done by people the victim knew as opposed to strangers.
- Have older average account ages – Accounts with long positive histories will do wonders for your account. Opening new accounts (even if you don’t use them) will lower the average age of your account and can take 10 points off each time.
Easy steps to improve your credit score –
- Don’t apply for too many credit cards or other loans too quickly – Signing up for multiple accounts within a few weeks of each other send off the wrong message to creditors. What you’re doing may be innocent enough but creditors get the idea that you’re going to fake your own death or something worse.
- Don’t have your credit report pulled to frequently by creditors – This kind of goes hand in hand with the previous warning. Even if you don’t actually apply for a loan or credit card the simple act of having your credit pulled will too frequently will hurt your credit. This is refered to as a ‘hard pull’. A ‘soft pull’ is when banks or existing credit card companies do frequent prequalification or check ups on you. At any rate try to avoid ‘hard pulls’ as much as possible.
- Don’t close down credit card accounts to improve your credit score – Most of the damage is done when you first apply for your credit card. Closing down accounts has little to no positive impact and will more likely hurt your long running credit history.
- Don’t carry more than 50% of your total balance – Carrying too much debt on your revolving credit or maxing out your card means you’re desperate and you are living beyond your means. Remember to pay your cards off monthly or carry less than 50% of the total balance if you must.
- Never go past your credit limit – Going over your balance actually shows up on your credit report and is a serious bad mark. Never ever go past your limit.
- Don’t move debt around…pay it off – Moving debt around won’t help your credit score in any meaningful way. While you might get a little bit of a boost by transfering revolving credit to a 2nd mortgage (bad idea for a million other reasons) you won’t get any boost by transfering from one card to another.
- Don’t declare bankruptcy or foreclose if at all possible – These things stay on your credit report for a very long time. Foreclosure stays on your account forever while bankruptcy will fade in time. Creditors can still ask you if you have ever declared bankruptcy even though it’s not on your credit report any more. Try everything you can before you have to use one of these two options.
- Don’t let past due bills go to collection agencies – Collection agencies are the creditors last resort to get money out of you. If you get a threatening letter saying you’ll be sent to collections, take heed. Once an account goes to collections that’s usually when the damage is applied to your credit report. Sometimes you can avoid disaster if you can catch it before it goes to this stage.
- Don’t job hop – keep a regular job. This might have more to do with certain personalities, or economic woes, but try to stay with one employer for as long as possible. Job hoping sends the message that you’re unstable and paying your bills might not be a guarantee.