The Six Most Important Steps To Maximizing Your Credit Score
What can take years to create, only moments to destroy
, and is probably the single largest determinant in your ability toleverage current and future investments (i.e. obtain loans and credit)?right or wrong, it is your Credit Score!
Despite our Credit Score being such a key factor in our financial life, so many of us spend so little time in managing this metric and even less time acquiring more than a cursory understanding of what behaviors result in good vs.bad credit.
You must learn some simple Credit Score concepts and strategies and apply them to your life if you plan to succeed in funding your future. Remember, these are not quick fixes but strategies that take time and diligence:
1.Get a Copy of Your Report Annually How do you fix a problem if you dont know that one is there? You can go here http://www.annualcreditreport.com/ to print off a free annual report, pulling credit history from the top 3 reporting agencies (Experian, Equifax, TransUnion.)
2.Learn your Credit Score and History In these uncertain lending times,you must have outstanding credit to achieve a loan.When you get that Credit Report,look at your Score and your history.Here are some tips to understand your score:
a)Score - Credit scores range typically between 300 and 850.Usually 760 and above is considered good or excellent credit and loan applicants can typically get credit with optimal terms if credit is in this higher range.Be warned: a few points in either direction could result in thousands (or more)in loan origination fees or higher rates especially if youre in the 650 to 720 credit range.
b)History - Ensure that any negative items on your report are either disputed or removed.You can ask creditors to remove items from your records,especially if they are several years old.If newer,go directly to the issuer.
3.Pay off All Bills On-Time and Dispute late-charges/fees/notes The credit report is just a big mainframe computer that chugs through lots of information about you to determine a final score.On-time payment for that Macys Card that you only got to save 20% that one time over Christmas is just as important as making that Amex payment every month without fail.When payments are late, your Issuer will inform that mainframe computer, and the damage is done.If you do forget,call and ask for the late payment to be removed from your record.Threaten to drop the card if you have to.At the end of the day,you need to ensure that bad mark is off your credit.
4.Manage Your Debt Wisely Make all of those Credit Cards and Car Loans work for you and your Credit Score
a)Take your time This may be one of the harder concepts for most people to understand,however,paying down your credit balances over time rather than right away shows that you have the ability to manage your credit.
b)Leave some cushion You do not want to use or tie up more than 10-20% of your available credit at any one time as that will negatively impact your credit.so even though you might not need or use a $20,000 line of credit; its better to have that credit limit with $1000 against it than a $1500 limit with $1000 against it.
c)Play the Game Here we land at a balancing game that is difficult for most people to handle,but is a fairly easy game as long as you know the rules:
i.Get the highest credit limits on your credit cards as you possibly can.
ii.Make purchases on multiple cards and pay 100% of the minimums off on time while ensuring that you revolve(just a little bit) from time to time on some cards.
d)Keep older accounts,even if you rarely use them As new credit card offers come in your mail with low interest/balance transfer rates and high rewards (free flights, etc.)attached to them,its easy to say Out with the old and in with the new! While it is completely fine to add new credit cards and change which one is the first in wallet (what those in the CC industry call the card you almost always use first), you still want to keep your positive history with your other card providers.The positive history and credit limit you have on that older card will actually help your credit score,even if you never plan on using it again.If you truly plan on never using it again, just cut it up and make a note on your annual plan that the card is no longer active.The credit agencies dont need to know this!
5.Re-negotiate Rates and Record Cleanup Now that youve gotten everything taken care of,there are still be some consistent areas of change that you should try to address at least a few times a year:
a)Cleanup of Spotty RecordsIf you have some items on your records that are less than perfect (that time 5 years ago when your 17 year old son forgot to tell the agency he movedand forgot to tell you he had a balance!) Just try to get them pulled twice a year at some point enough time will have passed or someone on the other end of the phone will empathize enough with you to help you!
b)Increase Limits/Decrease Rates Did you know that the average credit card company pays over $175 to acquire just one new customer? Rather than changing card carriers every time a better offer comes along, call your current carrier to see if they can meet or beat the offer.You can even offer to mail in a copy of the offer you got.Trust us,theyll give you great breaks as far as increased credit limits and/or decreased rates to keep you (especially if youre a good customer).
c)Advanced and Personalized Fixes MyFICO.com Operated by Fair,Isaac,and Co.; creator of the FICO score;MyFICO gives you an analysis of your current score in plain English and some helpful tips on what factors may have most heavily affected your score.
Remember,your Credit Score is a key factor in the amount of leverage you have in your financial future.Watch and manage it closely.Your financial flexibility,velocity,and ultimately your long-term wealth depends on it.
by: Dan Chamberlain
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