09/16/2021
LONG POST, but it is valuable financial information!
A credit score is one of the MOST important things to understand and ensure you are doing everything in your power to maximize it. It is a numerical representation of your credit and represents your creditworthiness and ability to repay in its simplest form. A breakdown below shows what encompasses your credit score and I have written some points below on how to MAXIMIZE it:
1. Manage your balance (under 30% of the limit) – This is called the “balance to limit ratio”. Spending too much utilizing too much of your limit causes a company to question your ability to repay the debt. Keeping it at 30% or less of the limit will ensure your ability to repay from the perspective of the lender. This is one of the first things lenders and credit bureaus look at!
2. In a pinch? Ask creditors to move your limits up! – If you are in a pinch and can’t bring your usage to 30%, consider asking your creditors to help you out. You would be surprised that many creditors will absolutely help you out. Let’s say for instance you have a credit card balance of $1,000 out of a max $2,000. As it stands, your usage limit is 50% and that could ding you in the eyes of the credit bureaus, but if you are able to ask the creditor to increase your limit to $4,000, now your ratio is 25%. In essence, this will increase your credit score, but don’t utilize this new limit and keep spending to your hearts content, that IS NOT the point!
3. Take advantage of authorized users – If you are looking to increase your credit score and a loved one (close family or spouse) has a credit score, lower balances, and a longer credit history than you, they can help you out! It is as simple as them adding you as an authorized user alongside this person. Naturally over time, you will reap the benefits of this user’s history and marks, which will increase your score! Person note, I was an authorized user on my parent’s credit cards when I was finishing college, this boosted my credit score considerably!
4. Try to keep credit cards open as long as possible (keep fees in mind) – One component of your credit score is credit history, which accounts for 10% of your score. Keeping cards open lengthens your credit score, which has a positive impact on your credit score!
5. Pay every bill on time, not a day late! – A huge portion of your credit score, 35%, encompasses your payment history. Make sure you track your bills either on a spreadsheet or through electronic billing and payment reminders! You can even set up auto payment plans through your bank or credit card company. Additionally, now a days there is an app for everything, including tracking your bills!
Best Budgeting Apps:
a. WallStJunky App (Coming Soon)
b. Personal Capital
c. You Need A Budget
d. CountAbout
e. Mint
f. Digit
6. Watch your credit report for errors – Errors happen all the time on a credit report, so make sure you are checking your credit score at least annually by taking advantage of free yearly credit reports through either TransUnion, Experian, or Equifax. Make noise if you see any errors, don’t let these go, get to the bottom of these errors and dispute it!
7. Do your rate shopping within a designated amount of time – To avoid having multiple hard inquiries that affect your score when applying for a new loan, rate shop within a 2-week period. Why? Because there is a 30-day grade period which additional inquiries won’t affect your score.
8. Don’t be afraid to negotiate – Remember that creditors are people, and there IS room for negotiation. If you come across financial problems that might impact your ability to pay your bills, call your creditors. Many times, they will offer alternative payment solutions, negotiate a lower interest rate, or many other possible solutions.
9. Pay all your credit card debt ASAP – Credit card debt is considered bad debt, and the quicker you pay it, the better you are off. Don’t try and pay the minimum and invest the different, because you are very unlikely to earn a rate of return that is greater than the rate of consumer debt. A good rule of thumb, use your credit carb as another debit card. If you don’t have the money in your checking account, don’t buy it with a credit card!
10. Credit monitoring services can be helpful – Consider using a credit monitoring service like Credit Sesame. Services like this alert you to dips and can help serve as an indicator to fraud. Also, they give you tips to boost your score!
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