Stepping Stone Wealth
Get Better Credit - 5 Secrets Of Success
Improving your credit, or FICO, score by even 50 points can save you hundreds of dollars per month in lower payments. This is because your credit score directly determines the interest rate at which lenders charge you for auto loans, mortgages, and credit cards. A better score can also make you eligible for many special rates and promo offers that you may not even be seeing right now because you are not on the “right” mailing lists due to a less-than-impressive score. Here are 5 secrets for getting a better credit score faster. Secret #1: Order you credit reports right away: There are two reasons to order your credit reports today from all three of the Big Three credit reporting bureaus: finding out your credit score and checking for identity theft. You can get your initial credit report for free on the Internet.
And, there are a number of companies online that will monitor your scores, flagging problems and keeping you abreast of sudden changes. Caution: if you find any errors on your report, get them fixed immediately. Secret #2: Make your payments on time: A full 35% of your FICO score reflects your payment history. The unfortunate thing about the current system is that you can make 5 years of regular payments but miss one payment and hurt your score by 20 to 50 points, just like that. Be on the lookout for your monthly bills, and make your payments on time, every time.
And, if you must be late on a payment, call the relevant lender and ask for a payment extension, giving them your intended date of late payment. This way, they will likely skip reporting the missed payment to your credit agency for the time being. Secret #3: Do not close multiple accounts within a short period: When you get on the path to a better FICO score, it may seem wise that you close a few or most of your credit card accounts. However, this can actually be a bad move, since it can result in a poorer debt-to-credit limit ratio (see Secret #4). In fact, it can be a good idea to keep many of your cards open, using one or more of them periodically for small purchases and then quickly paying them down at the end of the payment cycle. In this way, you will show your creditors that you are indeed a trustworthy debtor. Secret #4: Mind your debt-to-credit limit ratio: A whopping 30% of your credit score reflects how much you owe creditors or lenders by calculating your debt-to-credit limit ratio. This ratio is calculated simply by dividing your total credit card debt by the total credit limit for all cards you have open. The ratio is always a number between 0 and 1, with numbers below 0.5 being most favorable.
To improve your ratio, you can either apply for more cards (but be careful here if you historically do not have strong willpower not to spend) or you can pay down debt. I suggest a bit of both, with more emphasis on paying down debt! Secret #5: Be wise about transferring your debt among your cards: It can be tempting when trying for a better FICO score to just keep transferring your credit card debt among different cards, month after month. However, this actually does nothing to reduce your total debt and is not advisable. The exception, of course, is when you transfer debt from higher interest to lower interest cards. This is actually a very good strategy. Just watch out for items like transfer fees and other conditions and take those into account when calculating the benefit of making such transfers. There are very real monetary incentives to improving your credit score. Try each of these secrets and get a head start on the road to a better score.
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