Loan Information, Consolidation, and Calculators

Tips For Increasing Your Credit Score

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Increasing Your Credit Score Can Help You Secure The Best Interest Rates. Here’s How To Do It:

If you currently have balances on either loans, credit cards, automobiles, or a combination of any of these, pay them down.

When you apply for generally any type of loan, one of the major factors of determining your credit score is your balance to available credit ratio especially on “revolving credit” accounts like credit cards. This is simply the amount of money that you owe divided by the total available credit. The lower this ratio is, the more positively it impacts your credit. In other words, if you have a Visa card with a $10,000 limit, it’s better to have a $1,000 balance on it than to have a $5,000 one.

A systematic approach to debt elimination is to first pay off the items with the highest interest rate while paying the minimum on everything else. This will ensure that you save the maximum amount of money, and also pay off your debts in the most efficient way. Once the highest interest rate debt is paid off, go to the next highest debt and start paying that one off. You can continue this process until you have all of your debt paid off. This will significantly increase your FICO score.

Something you’ll likely notice is that it is usually best to pay your vehicle off last. This is because in general, automobile loans have lower interest rates than other loans. Utilizing these tips will put you well on your way to increasing your credit score.

Make your payments on time!

No matter what, you should always make your payments on time. Actually, early if you can swing it. Even if you are having financial difficulties, let your creditor know! Often times, they can and will work something out for you to avoid having a late payment negatively impact your credit.

It should also be known that if you cannot afford to systematically eliminate your debt as suggested above, (meaning that your minimum payments total are more than you can afford each month) I highly suggest you call your lenders and try to work out a more feasible plan. Sometimes, they will lower your minimum, or even forgive some of your debt to help you out. If you cannot work something out on your own, you’ll need to turn to a credit counselor to assist you in making your payments manageable.

Length of credit history counts!

The length of time you have been with a creditor has a substantial impact on your credit score as well. The longer the credit history, the better. This goes for not only each specific creditor, but also your overall credit history length. So, don’t just go close accounts that you’ve had a long standing with, even if they have a zero balance.

Maintain a healthy mix.

It’s good to have a healthy mix of loan types in your credit history. For example, someone that has a history of a mortgage, auto loan, personal loan, department store card, and a Mastercard would tend to have a better score than someone who only has had a Visa and a car payment on record.

Don’t have too many credit cards though…

However, if you have too many ways to access your spending power, it may deter your chances at securing larger loans. This is because the potential lender may be weary of the fact that you can easily max out your credit lines once the loan is approved. This would create a higher probability of you not being able to pay back the loan that you’re applying for. For instance, if before you go apply for a mortgage, it may be wise to close down a few of your other newer accounts or dormant accounts to make it appear like you don’t have the ability to get yourself into too much debt if approved for a mortgage.

It should be noted also that you should only open the charge accounts that you need. Any new accounts added to your history will, in fact, lower your average length of history on your report.

Bank loans are HUGE!

Having and maintaining a good bank loan history is paramount to your credit health. This is because of all of the loans available, bank loans tend to hold a lot of weight, since they are generally harder to get than other loans. An easy way to build a good history with bank loans is to buy a CD at the bank, say for $1000-$2500, or whatever their minimum personal loan amount is. Then, apply for a loan at that same bank. Tell them you need a small personal loan. What is key here is that you will offer to use the CD as collateral for your loan, meaning the bank holds on to your CD until the loan is paid off. If you default, the bank takes the CD. While you’re paying this loan off, make early payments, and also send double payments every month if you can. But make sure to stretch it out for at least a year.

By starting small and doing this, you can begin to build up your loan size and credit score by compounding. Pay off your first loan for say $2500. Then, take that money and ask for a loan for $5000. Since you’ve already made good on your first one, the bank should be more likely to give you another loan for a slightly higher amount. If they don’t you can simply buy another CD, this time for $5000, and use that as collateral. Repeat the process in the above paragraph.

Keep doing this, each time raising the amount. This way you’ll build credit and also have access to more money if you need it. If your credit score reaches the desired point, you don’t have to do this any longer. However, if over time, your score dips, you can do this process again.

An important thing to know about this method is that different banks report to different credit bureaus. If you want to gain the maximum effect of this method, seek out three banks: one that reports to Experian, one that reports to TransUnion, and one that reports to Equifax. In each bank, implement the process explained above. You must know if you wish to do this, you’ll likely need three times the capital, as you’ll need to purchase three CDs to use as collateral when starting out. If you cannot afford to do all three banks at once. Just do one or two to start off. Then, once you’re finished with the first loan, go to the bank that reports to a different bureau and start the process there.

No more “seasoned lines of credit”

A few years ago, raising your credit score was much easier. The main thing that people were doing was using what is known as a seasoned line of credit to increase their own score. What this in effect meant is that they would find a person with very good credit and ask to be a rider on one of their credit accounts. The fact that they were a rider on the account eventually increased their own credit score. This little trick worked for quite some time until FICO changed the credit scoring algorithm.