Your credit score is one of the most important measures of your financial health! I have found that few advisors have a handle on how to coach their clients to improve their credit scores.
There are ripple effects to having good or poor credit. The better your score, the easier you will find it to be approved for new loans and or lines of credit. A higher credit score can give you access to the lowest available interest rates when you decide to borrow. Good credit will improve your odds of getting approved for credit cards. There are employers that will run your credit score before deciding on hiring you. In addition, the higher your score, the less money you will pay for auto and homeowners insurance premiums!
Regardless of your age or current credit situation, it is NEVER too late to improve and/or build your credit. It takes some time, effort, discipline, and in some cases, breaking bad habits. There are niche companies that charge thousands of dollars to help fix your credit. You will not need to hire them if you heed my 10 tips below:
1. Review Your Credit Reports: You must start somewhere, so review your current credit reports. This is free and easy to do. You can pull a copy of your credit report from each of the 3 national credit bureaus: Equifax, Experion and TransUnion. This can be done for free once per year at www.AnnualCreditReport.com. To improve your credit, it helps to know what is working against you or in your favor.
2. If Possible, Pay Off 100% of Your Balances Every Month: Carrying over balances from month to month is a costly way of doing business. If this is an issue for you, I suggest enrolling into “auto-pay” online, one credit card at a time, so you can stabilize your finances. Payment history counts for about 35% of your credit score.
3. Correct Inaccurate or Additional Personal Information: Almost 90% of credit reports have your credit or personal information on you that is either inaccurate or dated.
4. Keep Credit Balances Below 30% of “Available Credit:” Credit card balances should be below 30% of your available credit ALL the time! If you need more credit, get another credit line.
5. Consolidate Student Loans: There are banks that have special programs designed to consolidate existing student loans (usually for balances of $100,000 or more) into one loan at a lower interest rate, which can save you $100’s per month from day one.
6. Limit Credit Inquiries: You should have a maximum of 7 or less credit inquiries per year. Any more than that can negatively affect your score.
7. Consider Adding an Additional Authorized User: This is an excellent way for parents to help young adults start building credit with little effort. The parent adds their child as an eligible user which starts building a history for the youngster. The more years you have credit, the better your score!
8. Consider Joining a Local Credit Union: Many Credit Unions have good initial offers for new member-clients and more liberal rules than banks.
9. Keep Old Accounts Open and Deal with Delinquencies: Do NOT close old credit cards that you might not be currently using. One of their formulas is to measure the “average age” of all your cards. The older the better.
10.Use Credit Monitoring to Track Your Progress: Credit monitoring services are an easy way to see and learn how your credit score changes over time. These services can also protect you from identity theft. The best credit monitoring services notify consumers about changes in their credit and the reasons why.