Credit Score. What Credit Score?

Ways to raise your score and boost your credit Scoring

It’s easy to manage your credit and make healthy improvements

Nowadays, unless you’re living off the grid in a dwelling you paid for using cash, it is next to impossible to NOT have a credit score. There are people out there might assume your credit is bad when its not. You need to know what is going on with your credit. The truth is, credit is necessary and if used wisely it is a powerful tool that can help people achieve a variety of dreams. Where credit gets “bad” is when it is abused, misused and not managed properly leading to out of control debt and stress. The measure of a person’s credit and use of credit is told in his or her credit score, and the score that most lenders will look at to determine a person’s credit worthiness is the FICO score.

There are a variety of things that affect a credit score:

Your FICO score can mean the difference in a number of things. According to U.S.News, your credit score can determine: whether or not you are approved for a loan, the interest rate you get on that loan if you are approved (a higher FICO score will get you a better rate leading to less money paid on interest over the life of the loan), the ability to get a credit card and even your chances of getting a job. (An employer will not see your FICO score, but they will often view your credit report). So, do you want to rent an apartment? Buy a home? Finance a car? Get a job? Well, then, you are most likely going to need to use credit, my friend, and use it well so your credit report and therefore, your credit score, shows potential lenders, landlords and employers that you are a good candidate for that loan, dwelling, or job.

So, what if you have a credit report and a credit score and it is not looking very good? Is that it? Does that mean you can never get a loan? No! You may want to know how to pursue a loan and raise your score. Trust me, you want to do this because a low credit score will mean either no loan or a loan with a higher interest rate. First, it’s important to understand a little bit more about how credit scores work and what affects your score.

According to Equifax, one of the three main credit reporting bureaus, there are a variety of factors that affect one’s credit score. Most are things you would assume would have an effect, like carrying a high balance on your credit card or making a late payment, but some of them may surprise you. For example, how long you have had credit accounts and having a variety of different types of credit accounts will also impact your score. Lenders like to see that you can manage a variety of different accounts responsibly while maintaining a good (long) credit history. Lenders will also look at how often you are inquiring about new loans/credit cards and if you are opening several credit accounts over a short period of time (red flag).

If you find yourself in the unfortunate situation of having little to no credit, or a credit score that is somewhat tarnished or downright rusty, then there are several things you can do to give your score a boost. Some people will seek outside help from a credit repair company, however, these companies charge a fee and do things that you can do yourself. Credit Karma, a San Francisco based company that offers free credit reports, access to credit scores and learning tools to understand your score, cautions to steer clear of companies that seem too good to be true. Especially if the company claims they can remove accurate negative information from your credit report, create a new credit identity for you or request payment up front.

Give some of these credit boosters a try on your own:

Don’t just close your accounts

When you close an account it does not disappear from your credit report. It still counts. What can happen though, especially if you had the account for a while, is when you close it the length of your credit history can be reduced and this can negatively affect your score. So, don’t close accounts!

Lenders want to see that you have been handling credit for a while. Your credit history is a factor in determining your overall credit score. When you close an account that you have had for a while, this can potentially shorten your length of credit history and therefore, negatively impact your score. It’s better to keep the account open and at a zero balance.  You can even hide the card, so you aren’t tempted to use it!

Set up auto payments

A late payment will show up on your credit report for seven years! This is a big negative ding to your credit. Don’t risk making any more late payments.

Instead of trying to juggle payments on multiple accounts and relying on your memory to make the payments on time, automate it. Set up automatic payments on your credit accounts and breathe easier knowing that your payments are on time and never forgotten. As time passes, the late payments on your report will negatively impact it less and less each year, falling off completely after seven years.  This, coupled with no new missed payments, will help to raise your credit score.

Pay down debt

Obvious? Yes. Easy? Not always. However, it’s a big way to boost that credit score – so stop using your credit cards, get a list of everything you owe and the interest rate you are being charged and then make a plan to start paying it off in manageable chunks. MyFico recommends getting rid of the highest interest accounts first and then work your way down your list. Some recommend taking the lowest balance cards and paying them first. Doing something is better than doing nothing.

If you are still struggling to make ends meet, make some calls. Call your credit card companies and ask them to lower your interest rate. Believe it or not, this CAN work. If the first person you speak to says no, ask to speak to a supervisor. They may still say no, but sometimes they will say yes and knock your interest rate down, which means more of your money goes towards the principal and that account gets paid off faster.

Open new accounts

Yes, you read that right, BUT open them and use them responsibly. This is a way to strengthen your credit and raise your score over the long-term. The key word here is long-term. Getting a “No interest” card and transferring interest rate cards to them is also a good way to improve your credit over the long term. You get rid of high interest, you are paying off the principle, and you are establishing strong credit. Don’t close the accounts and don’t use the cards you have paid off.

If you try to open several accounts within a short period of time, lenders will often view this as shopping around for the best rate and it will not have a negative effect. It is when you open multiple new accounts when that red flag is raised. If you are checking your own credit report or credit score, this will NOT have a negative impact.

Get help

If you are doing all of these things and hitting a wall, seek out a reputable credit counseling company. (Credit counseling companies are different from credit repair and debt settlement companies). Credit counseling companies are often non-profit agencies that work with you on developing a money management plan to help you improve your unique financial situations.

            These companies do not call creditors on your behalf or clean up your credit for you. They are often comprised of people who are certified and trained in credit counseling and debt management.  They offer education on proper credit handling, money management and finance and can help you create a budget to better manage your finances going forward.

The Consumer Financial Protection Bureau recommends checking out a credit counseling company with your State Attorney General’s office and local consumer protection agency before utilizing their services. The company should help educate you on money management and take the time to learn your personal situation. If you do not feel comfortable, trust your gut and seek out a different company.

Education is everything. Hopefully, this information will assist you in credit management. With a little knowledge and admittedly in many cases, a lot of effort, you can boost your score and improve your credit. This will start to open new doors for you, but always remember to stay focused and responsible with your credit goals so you do not sink back down into any bad habits. I wish you all the best in your journey and hope that you will check out the rest of our blogs as you seek to learn more about the world of real estate, goal-setting and leadership.

Cindy Bishop is the Managing Director of Cindy Bishop Worldwide, a real estate training and business building company.

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