While the easiest way to protect one’s credit and one’s credit score is to never allow it to come under pressure, this is not always a realistic approach. Below are five tips on how to improve and maintain one’s credit rating that are easy to follow and have a demonstrated track record of being effective. While it is not necessary to follow all of these tips to see an improvement, the more of them that are adhered to, the more likely that a significant increase can be achieved in a shortened time period.
1. Make Payment Arrangement When You Know You are Going to be Late
In an ideal world, it would never be necessary to be late when making a payment on a credit card, car loan, or other debt. It is often unavoidable, however, due to circumstances beyond one’s control. Circumstances change, disasters happen, and at some point, most individuals find themselves facing a situation where a payment is due and they do not have the funds necessary to make the payment by the deadline.
When this happens, the most common reaction is to feel embarrassed and simply make the payment late, quietly paying the late charges and moving on. While many creditors will not report late payments to the credit rating agencies if the payment is less than thirty days late, so will. From the perspective of the lender, a late payment may mean that the borrower has simply decided to default. By calling the lender, explaining the situation, and setting a time by which a payment can be made, one drastically reduces the chance that the late payment will be reported.
In terms of pure technical fact, once an arrangement is made, the account may be removed from the delinquency list, and an automatic notification may be avoided. The fewer negative reports the rating agencies receive, the higher one’s credit score will become. Be sure to utilize a service like CreditScoreQuick.com to know exactly where you stand with your credit score and payment history.
2. Know Which Bills are of the Greatest Importance
While paying all of one’s bills is an important step to achieving and maintaining a high credit score, some bills are more important than others. Generally, large ticket items are of greatest importance, then high interest debts, and utilities carry the least credit risk. Understanding this means that one can make payments according to the impact each bill will have.
For example, making a car loan or house payment is of top priority. When one needs to purchase one of these items again in the future, the potential lender will take into account your payment history on these items about others. If you have some late credit card payments, but have never been late with a car payment, you are more likely to get another car loan in the future.
Credit card companies are the most likely to make a negative report to the rating agencies, so they are of the next highest importance to pay on time. At the bottom of the list are the utility companies; while they can turn off your power, their late charges tend to be low, and they do not typically report any but seriously delinquent accounts. Adhering to this order can help raise your score.
3. Manage Balances Carefully
In addition to considering the total amount of debt, one’s credit score is heavily impacted by the percentage of available credit that you used up. As a general rule, it is best to keep your outstanding balances below 50% of your available credit to most significantly protect your credit score. Adjusting your balances to follow this rule can have a significant and quick impact on your score.
For example, if you have one credit card that is maxed out at its $500 limit and two others that have only $50 balances with the same limit, you will likely have a lower credit score than another individual with the same net balance but $200 or less per card. To improve your credit score, find a way to do a balance transfer. Opening up a new card or two to accomplish goal may have an immediate positive impact on your score. The rating agencies want to see that you are “managing’ the credit you have available.
4. Do NOT Close Credit Cards
Even if you have obtained a better credit card, do not close your old credit card accounts. Closing a credit card effectively removes that credit card account from your credit history and can negatively affect your credit score.
5. Check Your Credit Report and Dispute Negative Items
The single best way to manage one’s credit score is to be aware of what it is and fight to keep it intact. There are several free services to check your credit score quick that provide an individual with his or her credit quick. One is entitled to challenge any negative items directly with the rating agencies. If the information cannot be 100% verified as 100% accurate within 30 days, it must be removed permanently. Challenging negative items can remove negative reports and improve one’s score, as some items may not be verified in a timely way.
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