As the nation slowly recovers from the economic crisis and lending institutions continue to tighten the qualifications for obtaining new loans, potential borrowers need to be more proactive than ever in establishing and maintaining good credit. Although good credit doesn’t happen overnight, here’s a refresher course on the best ways to consistently boost your personal credit score.
1. Never take your credit score for granted: A common misconception is that personal credit just sort of takes care of itself, and that reviewing credit scores is essentially a waste of time, being that all of our comings and goings in the credit world are reported accurately. The fact of the matter is that credit reports often contain discrepancies, misreporting’s of our activity that could have a negative impact on our credit rating. As a result we owe it to ourselves to review our credit reports at least once a year. This should be done ONLY through the website annualcreditreport.com, a site sanctioned by the FTC that allows you to obtain a yearly credit report free of charge, in a manner that will not adversely affect your credit score. Using any other website to obtain your credit can be costly, being that your personal information may be misused and your overall score could be jeopardized. Once you obtain the report, either online or via request over the phone, check for discrepancies and refute them if necessary by sending copies of all correct documentation via certified mail to the entity that issued the incorrect report.
2. Keep credit cards to a minimum: Although credit and debit card transactions are quickly becoming the standard for doing business, it’s important not to apply for more credit cards than you actually need. For example, when making a purchase at a store you visit infrequently, it’s best to avoid obtaining a store card to save more money on the purchase at hand. Each new application requires a credit check, and each credit check over the official annual report can negatively affect your credit rating and thus your ability to obtain credit when you really need it.
3. Maintain low balances: On those credit cards that you do use, try to keep the balances below 50% of the available credit (30% or less is ideal). Should you exceed your limit, make every effort to pay it down as quickly as possible to avoid the high fees and negative effect on your credit. When making payments, try to pay more than the minimum amount if you are carrying a high balance and always pay within the 30 day period to avoid late fees that will not only bring down your credit score but can make it very difficult if not impossible to get out from under the balance.
4. Avoid high interest rates: When applying for a loan or a credit card, avoid any companies that offer loans at unusually high interest rates. If you have a card with a steadily increasing interest rate, do all you can to pay off that card first, then use the freed up funds to pay down the next card with the highest interest.
5. Use older cards strategically: Once you succeed in paying down your oldest credit card, do not close the account as this will result in a lowering of your credit score. Instead, use it every 6 months for small purchases and pay it off on time to keep the positive credit report going. This can help to raise your score even if you have other high balance cards, providing you are keeping current on your payments. Being that older cards normally carry lower balances, they should also be designated as the ones to use in case of an emergency expenditure.
6. Negotiate better rates: Lending institutions do not profit from people who default on their loans. If you find your debt spinning out of control contact your lender and be honest about your debt situation. Then ask if you can negotiate a more reasonable rate or better payment options to help assist you during the payoff process. There’s a very good chance that the lender will work with you.
7. Stick with healthy spending habits: Once you are able to pay down your debt to a manageable amount it’s critical not to return to old spending habits. Budgeting takes discipline but can be very rewarding in the long run. Although paying off a credit balance is cause for celebration, it’s important to avoid that old urge to overspend. Finding new and moderate ways to reward your financial abilities will bring the best reward, namely the peace of mind that comes from living within your means.