By: Gaurav Bhola, MSM, Managing EditorHow many times have you looked at your credit report? Do you know your credit score? The information contained in your credit report is the only thing that directly affects your credit score. In return, your credit score impacts your ability to obtain credit and approval for loans. The score also affects the interest rates you will be charged on your credit and loans.
The credit score ranges from 300 to 850, with the highest score reflecting excellent credit. Having a low credit score can stop you from getting credit and loans, or at a very high cost; meaning you will be charged higher interest rates. The reason for charging higher interest rates is because lenders see consumers with poor credit scores as a higher risk than people with good credit scores.
Over the life of a loan, a high interest rate on a home loan mortgage, home equity loan, student loan or car loan can cost you thousands of dollars in interest fees, which could have been lessened with a low-interest rate loan.
If your credit score is low, it is important for you to improve your score in order to help secure your financial independence through sound financial planning. The road to credit repair can take weeks to years depending on the severity of your credit history.
For now, it is critical we focus on how to enhance your credit score over time. These are the top ten tips to boost and improve your credit score:
1. Make bill payments on time
Late payments appear negatively on your credit report leading to a drop in the credit score. Make your loan and credit card payments on time, don’t be late. There is no exception. Never skip your mortgage payments, make late payments or default on credit/loans; a record of which can be on your credit history for seven years.
Avoid your accounts from going to a collections agency. If you are unable to make your monthly payments, negotiate for an alternative payment schedule. By simply paying what you can and working with your creditors, instead of avoiding them, you can take a responsible approach towards protecting your credit and enhancing it over time.
2. Use your credit card as a last resort
By the mere fact of possessing credit cards impacts your credit score. Another important factor taken into account in calculation of your credit score are credit card balances. If you have a balance of over 35 percent or more of total available credit limit on individual cards, this can hurt your credit, even if you make your regular payments.
By responsibly using your credit cards, as a last resort and keeping your balances to a minimum, you can manage your credit card debt appropriately. This can serve you well in keeping your credit score from dropping and may help improve your score over time.
3. Don’t terminate unused accounts
Credit card agencies use the length of time you have held each card into consideration when calculating your credit score. So if you have some cards that are no longer being used, don’t cancel the account. It is better to keep your cards in your shoebox and not use them. Remember, you are rewarded for maintaining a long-term relationship with each creditor, irrespective of whether you use the card or not.
4. Avoid getting too many credit cards
The temptation to receive the 10 to 15 percent discount off your retail purchase by applying for that store’s credit card can be tempting. But it can also hurt your credit score. If you obtain multiple new cards (plus retail credit cards) within a few month period can negatively affect your credit score.
5. Avoid balance transfers
It is common for people today to play the balance transfer game. Consumers keep transferring balances from one credit card to another because they are unable to payoff the credit balance. Simply opening a new card account can lower your credit score by about 5 points or so. If you transfer your balance to a lower limit card you can hurt your scores.
Also, if you close your account after you transfer your credit balance, you can hurt your credit score because you have less credit available, available credit is used in formulating credit scores.
6. Evaluate your credit report annually
Make sure you order your free credit report from one of the credit reporting agencies (Equifax, Experian, or TransUnion). Carefully review all of your credit reports and initiate a dispute to correct or remove erroneous information.
7. Don’t have a frequent credit checks
Every time you apply for a loan or a credit card, a credit check is performed with one of the three credit reporting agencies. This inquiry is added to your credit report and becomes part of your credit history. Each inquiry will remain listed for two years.
However, during the first year the inquiry will reduce your credit score. Several credit checks in a very short period of time can considerably diminish your score.
Take into account, when shopping for an auto loan or a home loan mortgage; it’s allowable to have several inquiries for this purpose within a 30- to 45-day period, without the inquiries hurting your credit score. These compounded inquiries will be counted as a single inquiry.
8. Avoid Bankruptcy
Negotiate with lenders about restructuring your debt, hire a debt consolidation expert, or a credit counselor before you file for bankruptcy. By filing for bankruptcy your credit score will drop like a rock. Moreover, a bankruptcy will burden your credit report for ten years.
9. Restructure and payoff your balance
Stop making late payments or transferring balances. Make payments on time and have a time frame to payoff your entire balance over time. A disciplined approach towards your debt can save you thousands in interest over time.
10. Get your creditors to work with you
Believe or not, creditors want to be repaid the monies they lent you, even if it’s pennies on the dollar. The message, you can negotiate with your creditors. Openly communicate with your creditors, instead of skipping payments. Don’t force the credit card companies to turn to collection agencies to collect the debt. This will hurt your credit score further.
