Day 7: 30-Day Financial Wellness & Home Ownership Series
Since I wrote on things to know about credit cards, the next obvious step is to talk about tips to improve your credit score.
I’m no credit wizard but thankfully I have the personal experience to be able to share with you some strategies. I have worked through all seven of these tips over the years.
In the past, I’ve also read books, articles, and watched financial-related television shows that have added to my knowledge. However, personal experience trumps them all for me.
Since I began pulling my credit reports in my early twenties, my credit has remained good to almost perfect. I believe my lowest score ever was in the mid 600s and that was mainly due to high debt, not missed payments. With only 4 items currently on my credit report, my score is now in the 800s.
This is just to say that I’ve been battered and scarred with my money. No doubt about it. The journey has not been easy as you’ve already read but I persevered so I could get to the sunny sweet side. Ten years ago I didn’t understand why I was so focused on keeping my credit in shape other than to buy things. Now, it all makes sense. Employers now check credit reports before hiring you. Almost six years ago, I had to go through that process. In my early twenties, it never crossed my mind that in order to get ahead in my career, I would have to go through a credit check.
Add to that…simply peace of mind. You’ll see that I refer to that word peace a lot. It’s important to me. Some folk love shopping. I love peace. Some folk love traveling. I love peace. Some folk love hanging out on Friday nights. I love peace. Nothing wrong with any of those things, I’m just saying what floats my boat is to have peace in my life in all areas. But since we’re talking about personal finance — Bills paid. Money saved. No creditors calling my phone.Financial peace=Bills paid. Money saved. No creditors calling my phone. #natashavip #30dayseries… Click To Tweet
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7 Tips to Improve Your Credit Score
Pay Bills on Time
This is the big one. If you don’t pay your bills on time, then you can forget everything else on this list because they won’t matter in the grand scheme of things. For credit cards and installment loans, that means you need to pay the bill before 30 days is up. You may still receive a late fee if it’s past due, but if you pay before 30 days, you an at least save the hit to your credit score.
But try not to pay late so you won’t have to pay late fees. That’s money you can use for other important things like buying what you need, saving, vacation, etc.
I always tell people to not ignore calls from creditors. And do not allow your due date to pass by and you not give them a call. Listen, they can’t beat you up. They can’t put you in jail. But if you at least call to say you will be late and give them a timeframe to receive payment, you can at least stop the constant calls. You’ll probably still end up with a late fee but at least it’s noted in your account that you called and will be paying by a certain time. If you pay past the 30 days, you’ll probably still have a hit on your credit. But hopefully not having a barrage of calls from them will give you some peace of mind.
In terms of other bills like utilities, I don’t believe they report to the credit agencies unless you totally disappear and months go by before you pay a bill. Just don’t do this. Unless you’ve filed for bankruptcy, pay what you owe. And that includes personal loans to you from friends. But that’s a story for another day.
Creditors want to see if you’re paying your bills on time before trusting you with more credit like a home loan.
Keep Credit Card Balances Low
As we’ve talked about before, the ideal situation is to pay your credit card bill in full monthly. If you don’t, not only do you have finance charges added to your bill but as it rolls over into the next month, chances are you will add to it and the balance will grow out of hand. It’s very easy to run up a credit card bill and very hard to pay it off.
If it’s not a real need, don’t put it on the card. If you can’t pay the balance off in one month, don’t put it on the card. You’ll think to yourself that it’s no big deal if you charge that $500 bag to your card. You’ll be able to pay it off right? Well, life happens and especially if you don’t have an emergency fund saved up. Now, you need a $1,000 car repair and that has to go on the credit card. So, now you’re up to $1,500 on the card not counting finance charges. See how quickly that adds up? That’s very hard to pay off in one month for many people.
Creditors want to see how you use your credit cards and how you pay them.
Have a Mix of Debt (if you have to have debt at all)
Most people have some form of debt. Whether it’s a mortgage, car payment, credit card, student loan, we all have something. I’ve heard that it’s better to have an installment loan to build your credit where you have a set payment that you pay every month. An example would be a car payment. You’ve probably heard the terms good debt and bad debt. Good debt would be student loans while bad debt would be credit card balances.
Debt is debt to me but apparently it makes a difference in how the credit agencies calculate your credit score. So, no matter what type of debt you have, be sure to pay the bill on time. The lower the debt in regards to your income is key as well. Otherwise, you’re just drowning and it’s time to come up with a serious financial plan.
Each individual is different and so while you may think that you have a similar financial situation as another person, you both could have totally different credit scores. There are factors involved that we will just never know but work on what you do know.
Creditors want to see that you can manage a mix of debt.
Keep Accounts Active and Over a Long Time Period of Time (Don’t close credit cards after you’ve paid them off.)
So once we pay off a credit card, most times our first thought is to close the account. You’re excited! You just got that monkey off your back and you never want to see it again. But hold up. Now is the time to control yourself and your splurging.
If part of your financial plan still involves buying a home for instance, you will still need to demonstrate that you can manage credit – unless you plan to pay for the house in cash. If so, great! But many people cannot afford to do so.
You should allow that card to remain active especially if you’ve had it for a long time. I have a couple credit cards that I’ve had for over 15 years. No way am I closing those down. If I do, there goes my good history down the drain. Nope, I worked too hard for it.
Unless you have another credit card that you’re making payments on, you want to use your card at least once per month to show activity and that you’re a responsible user. You can put gas for your vehicle on it and then pay it off right away.
Creditors want to see that you’re responsible with your credit.
Do Not Apply for Credit Often (Soft hits vs. Hard hits)
I remember being in college and applying for everything I could. Do colleges still allow credit card companies to set up shop on campus? When I was in school, they seemed to be everywhere.
What I didn’t know at the time was that it was harmful to apply for credit as often as I did. That’s called a hard hit. And that spells trouble. In the eyes of creditors, you’re a huge risk for lending money. You may be seen as not trustworthy according to your credit file.
Don’t apply for any type of credit often. I haven’t applied for anything in the last six years and it feels good. Yes, the department stores will try to entice you to apply for their credit cards for that little percentage deduction. It’s not worth it to take a hit to credit score at all.
Once I paid off McRae’s (some of you probably haven’t even heard of that store), I was done with department store cards. I haven’t had one in at least 15 years. The interest rate is astronomical, so if you don’t pay it off monthly get ready for the huge finance charge.
If you plan to purchase a home, these hits will not serve you well at all. They lower your credit score and what you’re also telling creditors is that you’re a risk because you will take on too much debt.
Soft hits are when the creditors you already have check your credit reports. So, this check wasn’t of your doing but they sometimes do this to make sure you’re doing good overall in paying your debts I guess. Maybe they have some sort of risk calculation that tells them you’re about to be in trouble. I’m not sure. But soft hits aren’t anything to worry about.
Creditors do not like it when you apply for too many different types of credit in a short amount of time.
Protect Your Confidential Information
On day 6, I told you about the situation that happened with my Citgo card through no fault of my own. So, there is just some things we cannot prevent. However, there is also a lot that we can prevent.
Don’t give out your confidential information to just anyone especially someone who calls you on the phone. If you call your bank, then you know you’re calling the correct place. But how do you know who’s calling you is who they say they are. So many people have been scammed this way. Just don’t do.
Don’t keep your social security card in your purse or wallet. Memorize your number and your entire family’s numbers as well if you must. If you lose your purse or wallet, there goes your social security number out there for anyone to try to use.
Establish a method for protecting your information. Do you need a file box that locks? Should you pay for a personal bank box at your bank to hold records? What can you shred or burn?
There are people working around the clock to steal information and assume other people’s identity. Protect your confidential information like you protect your cell phone. Seriously.
Creditors don’t know you from another person. All they know is that your information has been verified. Make sure it’s you that’s doing the verifying.Protect your confidential information like you protect your cell phone. #natashavip #30dayseries… Click To Tweet
Dispute Incorrect Information on Your Credit Reports
Some people hire companies to do this for them. And that’s fine if it’s something you don’t want to deal with. But if you want to save yourself some money, you can do a lot of this yourself.
When I moved almost six years ago, I thought I had taken care off my final utility bills. I even gave the companies notice that I was moving and my new address. In addition, I filled out change of address forms with the post office. So, why was I shocked a few years later to see that the gas company had reported to the credit agency a balance of $19?! Yes, $19! So, you see it doesn’t matter the amount. These companies want every penny.
Well, I filled out the credit dispute form. I explained what I thought may have happened that the bill wasn’t forwarded to my new address. The credit agency took almost no time in removing that negative item from my credit report. My credit score shot up about 25 points. Yes! A mere $19 was holding my 25 points hostage.
The point is that I got to work and handled it. So many people have negative items on their credit reports because they’re too afraid or too lazy to just handle it. You’ll be amazed at what you can do for yourself with a little elbow grease.
Creditors don’t know if your report is right or wrong. When you apply for credit or a home loan, all they can go by is what they see on your report. Make sure what is there is correct.
Are you going to take action on your personal credit today? These tips to improve your credit score are just a few things you can do.
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