How to improve credit? Most people think it’s to pay off collections. While that may work sometimes, here are some alternative ways…
- Keep your credit card balances low compared to your credit limit. There are experts who say 30% and other experts who say 50% is the magic usage amount. Whatever is the magic number, it means you should only use $300-$500 of a $1000 credit limit. This is important regardless of your 0% deal, or 10% off, or any other offer that baited you into using more than 50% of the credit limit of your card.
- Keep your TOTAL credit card balances low compared to your credit limit total. Yes, this has a snowball effect as well. Your total credit card debt, let’s say it’s $5,000, and your credit limit is $7,500, is now over 50% usage, so it counts more points against you. So if this number one is off, even on just one card, it can effect your total credit card debt as well, which then takes off more points.
- Keep medical collections from showing up. While most mortgage lenders ignore medical collections, especially small ones, you maybe don’t have to have any of them by negotiating small payments with the medical billing. Typically, medical bills have 0% interest, so what you see is what you get. If you owe $100, setup a $10 monthly payment plan before it gets to collection, and it will never show up on your credit report! While the mortgage lender may ignore them, they still affect your credit score, so this ounce of prevention may prevent a pound of cure (or a higher interest rate on your mortgage loan for a lower score) later…
- Be careful with finance companies. Yes, personal finance companies can take points off your score. Is it worth 10% off or 0% interest on that furniture to stick it on a brand new finance company account and count points off your score (the presence of a finance company and a new account that you have no intention of keeping for any long length of time)? In some cases, it might be. In many cases, it could cost you more long term than it is worth, just be sure to weigh all your options first.
- Be careful with applying for credit. The old adage is that a used car dealer is the worst thing you can do for your credit. The reason why is that they “shop” your application to a number of creditors (a new car dealer may do the same thing) and that leads to a lot of “hard” credit pulls on your credit report. Why does this affect a credit score so badly? Think of it from the creditor’s perspective: the credit bureau can be 45-90 days behind. You pulled your credit 10 times for car loans. We don’t know if you bought one car or ten! Those points add up and generally stay negative on your credit report for a year or more. Again, an ounce of prevention is better than a pound of cure.
There are steps you can take to prevent a low score, or to better your score. These are just a few common ones that can have a long term negative effect. There are times where we look at pages of medical collections. Some are $20 or $30. No matter what the excuse, that really looks bad (think of it this way, you want to borrow thousands of dollars and pay me hundreds of dollars a month and you wouldn’t pay $20?!?). Sometimes that can drag a score down so low that we don’t have a whole lot of options to get it back up than to simply pay them off and stop having any more. It would have been a lot better to prevent them in the first place.
An ounce of prevention is better than a pound of cure… Get started here