Boosting Your Credit Score

credit score

Boosting your credit score might not be something you think about every day.  If you are trying to buy a house, a car, or trying to get a better interest rate on your credit card, then boosting your credit score might be kind of a big deal.  Fortunately, there are several ways to boost that number regardless of your credit history.

Monitor your credit reports for errors

One of the largest factors of having a low credit score is due to errors in a credit report.  There are several free services online that will let you view snapshots of your credit report for free.  Two of the most popular services are Credit Karma and Credit Sesame.  Sign up for one of the free services to check your credit report and look for anything that appears to be unusual.  If you find something that you don’t know what it is, start researching and if you find it to be incorrect, report a dispute!  You can open an investigation (dispute) online.  Once the error is corrected, it may take a month or two before it updates on your credit report, but you should see your score increase.

Pay your bills on time

Paying your bills on time seems like a given, but many people may not realize that when creditors don’t receive your payment on time, they report this to the credit bureaus (Equifax, TransUnion, and Experian).  The more missed payments you have the lower your score.  You need to be diligent and make consecutive payments.  If you have been missing payments, it’s not the end and you still have the chance to make it right.  After 6 to 12 months of consecutive on-time payments, you should see a significant boost in your credit score.

Pay more than the minimum due on loans and credit cards

Most credit card companies typically set the minimum payment due at the current interest plus 1% of your total balance.  This might seem pretty affordable at around $25 or even a $50 monthly payment, however, it is really a horrible deal!   

Scenario:

Let’s say you have a balance of $1500.00 on a credit card with an 11% interest rate and you pay the minimum payment of $25.00.  It would take you 88 months to pay off that card!  Not only will it take you almost 7 years, but you are looking at paying an additional $688.00! 

If you pay as little as $10.00 more per month on that credit card, you are paying more toward the principal and less on interest.  So instead of 88 months, you would have the card paid off in 60 months and only pay $449 in interest.  Paying more than the minimum due also positively affects your credit report.  This shows that you are not only willing to pay your debt but responsible too.

Don’t use more than 10% of your available credit

Congratulations on getting that credit card with the $10,000 limit…or should I say, oh, I’m sorry, that sucks!  It really depends on how you use your available credit.  If you are the kind of person who uses credit cards for everything and just pays the minimum due, well that sucks.  You are looking at a decade or two to pay off $10K, plus there’s a good chance that you will pay almost double on what you owe! 

Using more than 10% of your available credit will certainly lower your score.  The more you use, the lower your score.  If you can reduce your payments and increase your available credit, you will certainly see a boost in your credit score!

Don’t apply for too much credit

Just because a department store offers you to sign up to their credit card and they tell you that you could save 20% on your purchase right now, doesn’t mean you should do it. 

Every time you apply for credit, whether it is an auto loan, personal loan, or a credit card, your credit report takes a hard inquiry hit.  Those hits can add up and reduce your overall score.  There really isn’t a way to remove them, other than waiting it out several months or several years!

Don’t Close Accounts

When you are looking at your credit report you might find some really old accounts that haven’t been used for some time.  It’s OK to leave those there and don’t close them! 

Your old accounts show a timeframe of when you established credit.  The older your accounts are the better!  Removing old accounts could actually hurt your credit score.

Become an Authorized User

Did you know that you could ask to be added to a friend or family member’s credit card as an authorized user?  Now, most of your friends and family may not want you using their card to make purchases, but they can add you as an authorized user without giving you access to the card.  What this will do for you is almost immediately boost your credit score.  You are basically using their good credit to improve yours!  This is completely legal and legit and I’ve done it before to help out my friends.  The increase in your credit score could be as much as a 30 to 40 point jump! 

There are services where you can pay a small fee to be added as an authorized user and most of these companies guarantee an increase in your score within a couple of months.  If you are looking to buy a house and you need a little better score to get the interest rate you want, I highly recommend using one of these services!

Check out my other post relating to personal finance!

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