How to Raise Your Credit Score?
Maybe you’ve been denied credit, preparing to purchase a home or are simply taking the first steps to build your credit. Building credit is as simple as 1-2-3, but it’s always the details in between that can be a little challenging. Let’s just right into it.
Eliminating Collection Debt & Charge Offs
Lets start with eliminating negative/bad debt. Collection accounts are ‘dings’ that have heavy impacts on your credit. When a potential lender sees collection accounts, this tells them that you are very past due and owe other companies. This will raise red flags and cause you to be considered a high risk to lend to.
It is always best to eliminate these accounts by either paying them off in full, settling, paying for deletion, or disputing them for removal. Once these accounts are rectified, this will regain the trust of potential lenders. The challenge in eliminating debt lies in the methods that you use. Have a little patience and set payoff-goals for your debt to ensure that you are steadily moving forward and eliminating bad debt.
If you have credit cards that have gone delinquent, call and ask if you can “Save the Account” - this will give you back an open line of credit; this will eventually become a positive account.
Pay Down Your Credit Card Balances
Our Credit Utilization plays a major part in raising our scores. If you have a lot of maxed out credit cards, your utilization percentage will be pretty high. This translates to potential lenders that you are “living off of credit”. Your debt ratio should be at 30% or below to be considered “good”.
Quick Tip: Please also take into account what balance is actually reporting to your credit bureaus. There are times when we are proactive and we pay our credit card balances BEFORE the due date comes out. This is great for the company, because they’ve been paid early. So when you credit card bill comes out is says: “No minimum payment due”. However, since the time you paid your bill, you’ve used it again and increased the balance. Whatever the balance is once the bill cycle closes is what balance will report to the credit bureaus. There is no real need to pay your credit card bill early if you intend to reuse it. Simply wait until your bill is due and pay your card down.
Click here to view the Debt Ratio formula.
Pay Your Bills On-Time
Paying your accounts on-time results in an on-time payment. On-time payments over a span of time is an important credit-building method. This will take patience as time is accumulated on a monthly basis. In What’s Your Score Made Of I review how harsh a late payment can affect your credit score. If you obtain a late payment it will take many months of on-time payments to recover.
If you are in a scenario where you might be late on a bill, call to perhaps defer the payment or make your account holder aware. They may be able to assist you before reporting the 30-Day Late. Our goal is always to avoid the 30-Day Late.
Stop Applying for Things When You Don’t Know Your Credit Status
Every lender will sell you a dream. They will tell you that they deal with poor credit and that ALL credit is accepted. They will tell you that they can’t give you offers unless they pull your credit and that you’ll “only get ONE inquiry for this pull” — don’t fall for this. Stop applying until you have worked on your credit and know the status without having to be denied credit first.
Every time you allow a company to “see” your credit, you obtain an inquiry. Ever company that takes a look at your credit can see every company that you’ve applied with as well as see if it resulted in an opened account. This weighs in on the decision-making process.
Only apply for credit when you know your credit score and the accounts reporting.
Click here to get a personalized financial analysis.