Instead of seeking down plain green loans because you are a little short this month, how does freeing up extra money sound so that you can finally take care of your finances and prepare for your future? By lowering monthly expenses, whether that is by paying off debt or lowing monthly payments on a mortgage, personal loan, or car lease, you can use that extra money to build up an emergency fund and increase contributions to your retirement account so that you actually have something to live off of during retirement. Credit score is an important factor when deciding not only if you are approved for the loan, but at what rate, so it’s important to have the best credit score out there. These days even potential employers can check your credit to view you as a candidate.
Review Your Credit Report
You may think you have perfect credit, until you go to apply for a loan and you don’t get the advertised rates, or even worse, not approved at all. With all of the fraud these days it’s a good idea to check your credit report at least once a year, and you can for free, as the major credit bureaus will offer a copy of your report once a year. You never know when you could get your info stolen at the gas pump, out to eat, or a data breach, so it’s a good idea to stay current on your report to make sure that everything reported is accurate, but just keep in mind it can take a month or two to catch up on the report.
Make Every Payment On-Time
Payment history is a huge piece of your credit score, which for reporting purposes means that your payments are never thirty days past due. While you may get hit with a late fee or an interest rate spike if you are even a day late, they will not be reported to credit. If you can get yourself in a system to automate payments on or even before, you will be in great shape to never miss a payment.
Pay Down Debt
Just as important as your history as a borrower is how much debt you are carrying compared to your available credit. The more your credit is utilized is when you will see your score significantly drop, especially if you max out your available credit. If you can pay down debt by making large monthly payments to really chip at the balance, while not continuing to charge up your card, you will see your score continue to improve every month. By carrying over a balance to the next month and being charged interest is really where you can get in credit card trouble, watching the balance rise with monthly payments doing little to reduce the debt.
Leave Zero Balance Accounts Open
When you do finally get out of credit card debt it should be cause for celebration, as you were able to fix your previous mistakes, get out of debt, while never having to destroy your credit with non-payment or bankruptcy. When you do finally see that zero balance you may have the initial instinct to close the account so you don’t tempt yourself by getting back to your old ways, but closing the account could actually hurt your score as you are taking away that available credit, so you can actually cut up the card and leave the account open to give yourself the greatest credit impact.
While it may only drop your score by a few points, you still want to minimize applications as little as possible so not only do you save your score from dropping, but these credit inquiries can stay on your report for up to two years, so you want to make sure that if you are filling out a credit application it is for good reason, such as a lower mortgage interest rate or for a credit card with rewards that will earn you money back each year.
Stick with It
I will warn you that credit will not go from being poor or average, to excellent overnight. Not only does it take a couple months even for the reporting to catch up with the lenders, but it can really take years of hard work, so give yourself plenty of patience and discipline and you will see results over time. While your free report will not give your credit score, you can check your online credit card statements each month as a score is listed and you can make sure it is trending in the right direction.