Your credit score has a huge impact on your financial status. Lenders use these scores to determine if you qualify for a loan, as well as the dollar amount of the loan and the rate of interest. Improving your credit score can lower your cost of borrowing by hundreds or thousands of dollars over the life of a loan. Here are some tips to improve your credit score.
Do the basics first
Make sure that you’re doing the basic steps to improve your credit. Start by taking a hard look at your current debt levels and spending habits. Create a monthly budget for yourself. The budget doesn’t have to be fancy- you can it write down on notebook paper.
To create a budget, review your recent bank and credit card statements. Look at the detail to determine where you’re spending. One easy way to cut down on spending is to reduce dining out. How much are you spending a month on that activity? If you have a plan to buy groceries and prepare meals, you’ll avoid eating out at the last minute.
Maintaining a savings account can help you repair and improve your credit score. A savings account shows potential lenders that you have financial self-discipline.
When you create that budget, include funds that go into savings each month. Make that savings account a priority. Investment professionals refer to this practice as “paying yourself first”. Set up an automated transfer from your checking account into savings each month.
Limit your credit use, and pay on time
Try to limit the amount of credit you use, but make sure you still use some. Your budget will include the monthly payments you need to pay toward debt. The less debt you have (in total dollars), the lower your monthly payments will be. If your payments are a relatively small part of your budget, they won’t put a strain on your finances.
Make sure that you pay your debts on time. Payment punctuality and credit use levels account for 65% of the (credit) scoring equation. Not only do you need to budget the payments, you also need to pay them by the due date. Set up the due dates for your debts as an automated reminder on your phone or computer.
Find errors and follow up
As I wrote before, your bank and credit card statements show your spending. Review those documents when you receive them. Reconcile your bank account as soon as you can after receiving the statement. Compare your credit card receipts with your card statement. If you find errors, follow up with your bank or credit card company quickly. The faster you act the easier it will be.
Individuals, as well as businesses, sometimes neglect this type of follow up. Say, for example, that your credit card firm posted your payment as being late. You can show that the payment was automatically sent from your bank account on time. The credit card company may be able to correct their records before reporting the late payment to any credit card bureaus.
Fixing incorrect data
If you find that incorrect credit information has been reported to a credit bureau, you have some options. Many credit repair companies offer consumers tips to help fix their credit on their websites. These firms can help you understand the credit reporting process, and how credit bureaus are obligated to remove inaccurate information. You might want to consider credit score repair services, but please be sure you understand the difference between secured and unsecured debt. I wouldn’t work with a company that changes unsecured debt (like a credit card) for secured debt (such as a home equity loan) as you don’t want to lose your house.
Use these tips to improve your credit score. A higher credit score can sharply reduce your cost of borrowing for years down the road.