When it comes to the category of “good” credit, you have two choices. You can either have a zero credit score or a high credit score. The zero credit score is easy to obtain – you simply pay off everything including bad debt and never use credit again. This method takes longer, but is the best way to go if you are a person who uses credit as debt (buying something you don’t have the cash for) instead of using it as a convenience, the reason for which credit was established.
A high credit score is just as easy to obtain and uses one of the same steps as the other. You need to pay off everything including bad debt. You will need to use credit in order to maintain a high score, but there are wise ways to do just that. You have one or two credit cards that you pay off every month, you have a reasonable mortgage (no more than 25% of your take home pay) on a house that has equity in it, you have a low % car loan (2% or less) that you use and pay off early instead of pulling money from investments – these are just a few of the examples. The key is that you are using credit, not accumulating debt.
Many of you are in that middle ground where you are trying to rebuild your credit. There are a few steps you can take right now and every month to boost your credit score.
1. Check you credit report for errors – go to http://www.annualcreditreport.com and get one free credit report from each agency (you get one free per year). Print them out and look over them for any errors. If you truly owe the debt, this is not an error. If the amount is higher, this is not an error (it is fees). An error would be something you can prove you paid off or settled in full in writing or something that truly isn’t yours. This happens a lot if you have the same name as someone else. Many companies don’t check social security numbers; they just match a name and move on. If you find an error dispute it with the agency directly (call them or visit their websites for instructions). Making your credit report accurate can boost your score (give it a few months to catch up).
2. Keep your balances low – a part of your credit score is your balance to limit ratio. If your limit is $500 and your balance is $400, that shows that you have an 80% usage ratio. You want to keep this number low. There are several ways to accomplish this:
A. Don’t charge more than 20% of your limit in any given month.
B. Make a payment before your billing date. Most companies report
your bill balance so if you make an extra payment or pay it off
before the billing date, it will report low.
C. Get a limit raise, but do not use it. This one is tricky, because
doing so makes you vulnerable to using it and causing bigger
problems. You also have to be careful because having high
limits can also affect your credit score.
3. Pay all of your bills on time. Once a bill hits 90 days overdue, it affects your score greatly. And once this has happened, it will take a while to rebuild.
Your credit score is your financial reputation. Whether you like it or not, it shows you and others how well you handle money. As you make wise decisions, the results of those decisions will transfer to your credit score. A zero credit score says you can handle money because you do not use debt in any form. A high credit score says that you are responsible and make wise money decisions and have great discipline when using credit (not debt). A middle score shows that you have made a few mistakes, hopefully from lack of knowledge and now that you have that knowledge, you are making wiser decisions.
We all have the ability to be wise when it comes to money. Some people, like myself, take a few wrong turns in the beginning, but it is never too late to turn things around. Take it from one who knows. I hope this helps you and I am sending you love and encouragement today and every day. Have a blessed day!
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