Fix Your Credit and Boost your Credit Score
Everyone needs credit – whether you think so or not. These days you can’t do much without a credit card of some kind. It is nearly impossible to rent a car, book airfare or a hotel room, without a credit card of some kind. That is why it’s important to stay on top of your credit rating and do what you can to improve it. The reason most people do not is the rules that govern that little number are never actually revealed – most people only learn the hard way when they do things to push that number down. It would be nice if they actually taught you about how credit really works in school, but it just doesn’t work that way.
The first thing everyone should be doing, at least every few months, is order a copy of your credit report. Order it directly from one of the 3 main credit bureaus – do not order it from a third party unless you know and trust that company. There are tons of scams out there, so you have to be careful. Once your data is leaked or stolen it’s a real pain in the you know what to undo any damage that might be done. And on top of this, the worries can go on forever, because the data on the internet lives on and is resold to other criminals. Once you have your copy, look at every item on it and make sure it is actually accurate. Meaning all open accounts you recognize and know, the reported balances are correct (mistakes do happen), and there is not stuff on there that should not be. Usually factual mistakes are easier to clean up (misspellings, wrong balances, closed accounts that are listed open etc). If you discover any of these, you will need to write a letter outlining the issues and mail it in. This is stuff you can easily do yourself, and repair your credit problems that are due to clerical issues.
A second thing you can do, is to put ALL of your recurring payments (mortgage, credit card, car payment, HOA fees, insurance …) on auto pay. Most banks now have online banking free of charge. Most credit cards allow you to setup auto pay for free. This will 100% insure that you never have a late payment on these. This is the easiest thing to have happened to your credit report, often just a mistake in forgetting to mail it by the due date (or sometimes the due date shifts from month to month, credit card companies LOVE to do this). Additional tip – look on your credit card statement. There should be a billing cycle from date A to date B. This billing cycle is usually uniform, its the due date that fluctuates. You want to try to have your auto pay submit the amount due BEFORE THE END OF THE BILLING CYCLE. This date is also when interest is computed on outstanding balances for the month, and it’s the dollar amount that is reported to the credit bureaus. This is a good way to get your credit score higher.
A third thing to do, is on all credit cards, always pay more than the minimum balance due. If the payment is 68.00, send in 75.00 or 80.00. Obviously, it’s in your best interest to just pay off the whole thing as soon as possible. But – you will get a better score if you don’t pay off your cards in full every month. Take 3 months to do it – the minor interest you pay is worth it to show you can carry a balance, pay on time AND then pay off the card. Do this several times and you will start seeing nice increases in your limits. This seems counter-intuitive, if you charge 1k then pay off 1k you would think that would be idea. But in the crazy world of credit, your card always shows a 0 balance so it’s like you are not really using the card. You are actually penalized for being a responsible person. No worries just vary the cards you use, keep a balance for a few months then pay in full and you are home free. You will boost your credit score nicely by doing this method.
A fourth thing you can do, once you have good credit (720++) is to apply for an unsecured line of credit. This is not a credit card, its a line of credit that you use checks to access. You don’t want to use this, you just want it open. Almost always its free to keep open (no fees). The reason you want this is almost always these are computed with SIMPLE INTEREST. Credit cards are always compound interest. If you don’t know the difference between simple and compound – its rather easy. Compound interest charges interest on interest. Meaning if you carry a balance of $10,000.00 and the annual rate is 12% per year, which means its split into 0.12/360 percent interest PER DAY. So compound interest will accrue today, then this is added to the balance and tomorrow, the interest is computed on this new balance. Over time it adds up to a huge difference. Simple interest is just computed once a month on the balance outstanding. I do not know if there are any simple interest credit cards, but I have not heard of any. The reason you want the credit line open, is if you get a balance on a higher rate, compounding card, you can transfer the balance to the credit line and pay significantly less interest. The credit card balance goes to 0, and you pay off the credit line per month. You just have to be careful with this method not to fall into the trap of paying off the credit card, then while still paying off the balance transferred to the credit line, you start running up a balance on the card again. This requires discipline, but is a decent method to save money.
A fifth thing you can do is to make sure no card goes above 50% of the outstanding credit limit. This is something else they never tell you. They give you a credit line of $10,000.00 but if you use more than $5000.00 of it, your credit score goes down. It does not matter if you pay more than the minimum, pay on time, never miss a payment etc – your credit score is dinged. The more cards you have in this situation, the worse off your score is. The terrible thing that has been happening lately – someone has a $25000.00 limit on a card – they have charged $7000.00 they are paying off each month, well below the 50% threshold. The card issuer decides to arbitrarily cut everyone’s limit to half of what it was before. Now you owe 7k on a card that has a 12k limit AND your credit score gets dinged. This happens regardless of anything you did. It has nothing to do with you paying it or not, its an accounting measure. The only remedy here is to pay off the card to get it lower than the threshold, or transfer some of the balance off the card.
Following these tips, you can easily build up your credit score and lower the interest rate you pay on everything from a home purchase to a new car. It is not really that hard, but you have to stay on top of it like anything else. No one will do this stuff for you – surely not the credit companies that make billions of dollars per year off of charging (and overcharging) people with high interest rates. It is up to you to take charge.