100 Percent Financed
If you've been turned down for credit, made poor financial decisions in the past, or plan to apply for a mortgage, auto loan, or a credit card, you might consider taking action to improve your credit score.
Your credit score is a reflection of your reported credit history at one moment in time. It changes as new information is added to your credit report, or when you handle credit in a more responsible or less responsible manner.
Here are 5 steps you can take now to start on the path to improving your credit:
1. Pay Your Bills and Credit Card Balances On Time
Did you know that your payment history accounts for approximately 35% of your credit score? If you have a history of paying bills late, you need to start paying them on time. If you've missed payments, get current and stay current. Each on-time payment updates positive information to your credit report. The longer your history of paying bills on time, the higher that portion of your credit score will be.
2. Review and Monitor Your Credit Report
Errors can happen, so it's important to review your credit report closely for the following:
- Accounts that aren't yours
- Accounts with the wrong account date or credit limit listed
- Names and Social Security numbers that aren't yours
- Addresses where you've never lived
- Negative information, like late payments, older than 7 years (late payments can only legally stay on your credit report for 7 years).
If you find accounts that aren't yours or suspect you've been the victim of identity theft, you'll need to place a fraud alert on your credit report, close those accounts and file a police report and a complaint with the FTC immediately.
3. Pay Down Your Credit Card Balances
The amount of debt you have can significantly impact your credit score. Your total reported debt owed is taken into account, as well as the number of accounts with outstanding balances and how much of your available credit has been used. The total reported debt is compared to the total credit available to determine your debt-to-credit ratio. Your credit score can suffer if those numbers are too close together.
Credit inquiries and opening new credit can lower your credit score, at least in the short-term. Closing old cards with high credit limits can also throw off your debt-to-credit ratio. If a new credit offer is too good to pass up, keep your total amount of credit available high by not closing any old credit cards. Considering all of this information, the best plan for lowering your debt is to make a commitment to paying it off. While transferring debt or opening or closing cards may seem like a wise move, don't consolidate debt or increase limits without, first, setting a payment plan in motion.
4. Use Your Credit
You must use credit regularly for creditors to update your credit report with current, accurate information. While paying with cash or a debit card may make it easier to keep to a budget, a cash-only lifestyle does very little to improve your credit score.
The easiest way to use credit is with a credit card, especially if you're trying to improve your score to qualify for an installment loan. If you have an old credit card, start using it responsibly again. A long credit history is a positive determining factor for your credit score, so making an inactive account active again may be advantageous.
Although you need to make a point to use credit regularly, only charge as much as you can pay off. Keep your credit balances low so as not to damage your debt-to-credit ratio.
5. Keep Track of Your Spending
Review your monthly statements when they arrive in the mail, or, better yet, log onto your online accounts weekly, to make sure nothing looks out of the ordinary. Tracking your spending gives you the chance to note specific patterns and identify areas where you can cut back if you continue to encounter challenges when paying your bills.
Looking to improve your bad credit? The team at 100 Percent Financed is here to help!If you have any questions, or would like any assistance in calculating your financial destination, we invite you to start with the first chapter of Juan Pablo's Quit Your Day Job book.