Over the years, I was able to increase, and then maintain near perfect credit scores by following a disciplined method to keep my finances in order. Credit tracking companies use many factors to come up with a credit score which are historically based. This means that if you want to increase your score, then you will need to start with a fresh approach. You need to establish a history that shows you have good credit standing. Realize that establishing a good credit history will take time. If you want to get a better credit score then there are disciplined practices that you need to consider.
Where to Order your own Credit Report
The first item of business to find your starting point. Do you already have good credit? Are you just not sure? Get your credit report online by visiting a reputable website like annualcreditreport.com. I use this site to get my credit report because it is recommended by the Federal Trade Commission.
Use annualcreditreport.com to order a free credit report from each of the three major reporting agencies. Credit reporting companies are required to provide you access to your credit report once a year at no cost.
Credit Report vs. Credit Score: There is a Difference
It is important to note that while the credit report is free once per year, it will still cost a small fee to obtain your actual credit score. Each of the three main credit reporting companies charge you less then $10 for a credit score. I think annualcreditreport.com is the fastest and cheapest way to get your hands on your report, and there are quick and easy links, direct from the major reporting companies to get your actual score. Most of the money lending businesses such as Suntec city moneylender carefully choose their borrowers. In general rules, those who have high credit score are the ones eligible to avail loan. So if you want to get higher loan, make sure you have high credit worthiness.
Once receiving your credit report, look for red flags that may be dragging your score down. If you see problem areas, especially with certain accounts, then you should work on improving your past practices. Simply closing accounts with red flags will not help your score. These accounts and their histories remain on file for a period of years.
How Do You Improve a Bad Credit Score?
If you receive a low or bad credit score, then you should treat it as a only symptom of a much larger problem. This larger problem is likely that you are either overspending, or not keeping track of your payment schedules. These two problems can be addressed by keeping a disciplined routine centered around keeping a budget and scheduling your loan and bill payments.
Get Your Financial House in Order
A budget is key to helping improve your credit score. You need to make sure that you are not overspending each month. Take stock of what your expenses are and write them down. Make note of your income. I keep a simple spreadsheet that takes care of all of my monthly budgets. This spreadsheet helps ensure that I am on track each month. If you find that you are continuously running a deficit, then you need to either cut spending, or look for ways to increase your income. If push comes to shove you may have to cut out the cable TV, and perhaps even cut the cell phone service.
Another way to cut costs is to consolidate your debt to lower monthly payments. In the short term, consolidating debt may hurt your credit score because shifting debt money between accounts will have a negative impact on the algorithms used to calculate your credit score. But, remember that we are taking the long term view to improve credit score and cutting outgoing money in your budget will address the problem over overspending.
Pay on Time to Improve Your Credit Score
I use Yahoo Calendar to create payment reminders. If a bill payment has a due date, then place it on the calendar a week in advance to endure that you do not miss the due date. I also make use of scheduled electronic withdrawals for monthly payments like the mortgage and any loans. This ensures that the lender always gets a payment on time. The big caveat here is that you must make sure the account is fully funded to handle the withdrawal. I follow a routine discipline of checking up on account balances to make sure the money is in the right place at the right time.
Does Debt Hurt Credit Scores?
The best approach is to eliminate all debt, but sometimes this is not feasible. Carrying a little bit of debt will not hinder your credit score, as long as you are making your payments on time and do not have a high debt amount or show increasing trend of revolving debt.
Early on, a rule of thumb I used was it to keep my overall debt, including my mortgage, car loans, and credit card balance, at or below my base annual salary. So, if buying that new car would carry my debt above that annual salary limit, I would hold off on the purchase until I can lower the overall debt below whatever my base salary was. Since I started working at eliminating debt years ago, I have been able to lower it enough so that I can just pay cash for most everything I buy, including big ticket items.
Methods to Reduce Debt
There are multiple theories on how to get rid of personal debt, but the method I chose was Dave Ramsey’s approach called the “Debt Snowball”. The “debt snowball” helps reduce debt, and it also boosts your confidence with visual results. The method calls for reducing smaller debt first by making larger payments to the accounts with smaller balances. Make minimum payments to your larger balances. As you get rid of each of your smaller accounts tied to debt, it feels like you are making faster progress in eliminating debt.
Discipline is the Key to Increasing Credit Score
Remember that you need to implement a disciplined approach to improving your credit score. Create a budget and monitor cash inflow and outflow. Keep tabs on when your payments are due and follow through with your creditors to make sure payments are being applied to your accounts. And lastly follow my philosophy:
Do not fret over a little bit of debt,
but do fret over a lot of debt.
It is okay to carry some debt when you are starting the long road to increase your credit score. You can use that debt that to establish a favorable payment history. This history will eventually populate your credit report with favorable data. A disciplined approach will lead to higher credit scores for the future.