How to mprove your credit score
There are some simple things you can do to improve your credit score in short order. You wont qualify for the lowest mortgage rate if you haven't already improved your credit score. Here are our top tips:
Mind your credit card balances:
Sometimes when paying off cards that have higher balances or approaching their credit limits we get in the habit of paying off one card first and then moving on to the next card. This can seem like a reasonable strategy especially if you have 2 cards, both with $10,000 balances and the interest rate on one card is at 25% and on the other card it’s at 15%.
However, credit bureaus look at it your “credit utilization ratio. The general goal is to have a ratio under 33%. So, for the purpose of improving your credit, paying the cards with balances closest to their limits first, is the way to go.
Report Errors to Improve Your Credit Score
An oft-cited study by the U.S. Public Interest Research Group found that 79 percent of credit reports contained a mistake — and a quarter were errors that could lead to the denial of credit. You’ll have to write to bureaus to clear up mistakes. Each credit reporting agency has their own process for clearing up mistakes. Once errors have been removed ask your lender for a rapid rescore and you should see a boost.
Don’t Close Unused Accounts
Do not close credit cards that you aren’t using. If you’re not paying annual fees on them, keeping them open isn’t going to hurt your credit score. In fact, closing those unused accounts could actually increase your credit utilization ratio. You will have reduced the amount of your available credit but your total balance due will remain the same, hurting your credit utilization ratio.
The Glory of Micropayments
One thing that has always been a great method for raising your credit score, and one that is usually pretty easy to manage, is to make lots of little payments. Or better yet pay your bill every 2 weeks, rather that monthly. You end up making an extra payment or 2 this way throughout the year and it will lower you’re balance faster if you are paying twice a month rather than once a month.
Raise Your Credit Limit to Raise Your Credit Score
This is not the first thing you’ll do when rebuilding your credit but if you start to see an increase in your score and you have a card with a lower balance and a good history of payments then you can request an increase in your credit limit. If you are approved for a higher limit, and your balance stays the same or continues to decrease then your overall credit utilization ratio will go down. What you’ll want to do is make a quick call to your credit issuer and ask them if you are able to get a limit increase without a hard credit inquiry. Hard credit inquiries can drop your score by a few points temporarily, and that should be avoided if possible.
Piggyback On a Relatives Credit to Improve Your Credit
This is another great way to raise your credit score without you actually having to really do anything, other than having a relative or a friend with Good or Excellent Credit. Ask them to add you to their card as an authorized user, and what this means is that you can get the benefits of creating a credit file or raising your credit score without even using the card. That’s right, the person with the long standing account doesn’t have to give you the account details or the card number, you don’t even have to use the cardf, but once you are on that account, then you’ll be getting the rewards of the good account and good credit score.
Set all of your accounts up for automatic payments
Late payments can demolish credit scores and erase all of your hard work. If your credit score has taken a hit because you forgot to send out your payment, you’re not alone.
It’s a good idea to sign up for automatic payments. Even if you only set them up for the minimum payment each month, you’ll protect your credit history. You can always make additional payments to bring your balance down faster.
If you put in a few months of hard work and focus on improving your score you’ll see a positive results on your credit rating and this means a lower interest rate. On a home loan, that can save you tens of thousands of dollars over the life of the loan.
Struggling with Debt?
If you're stuck under a mountain of debt then it's going to be hard to pay down your credit cards to raise your score. However, if you've got a lot of equity locked up in your home then it may be a good idea to look into an alternative to a home equity loan.
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