Improving your credit score can be a daunting task and if you are trying to do it on your own, do some research and get some advise from an expert. You may do more harm then good if you are not careful.
You sacrifice and work hard to pay off a credit card or two and get that liberating feeling that you're making progress. Then you check your credit score to see the effect of your admirable prudence, and you find the number has gone down, instead of up!
What you need to understand is that credit scores factor not just with the amount of debt you have; they also look at your credit utilization — the percentage of your credit limit that you're currently using. "That scoring factor is one reason your credit score could drop a little after you pay off debt, having low credit utilization (30% or less) is good; having no credit utilization may be harmful to your score."
What about paying off installment loans? "Paying off an installment loan, like a car loan or student loan, can help your finances but might ding your score," they report. "That's because it typically results in fewer accounts. (That's not a reason not to do it! Don't stretch out a loan and pay more in interest to save some credit score points.)”
Once you've gotten your balances to zero, guard your credit by making it easier on yourself to pay on time by setting up electronic reminders, monitor your credit report for errors, and dispute any you see. Someone's file may be mixed up with yours, or your identity may have been stolen — both of which can seriously affect your score.
And just because you cleared out some debt, don't get tempted to apply for more credit products in a short period of time , whether it's the purchase of a car, furniture or to take a trip. "Opening new credit lowers the average age of your credit accounts and involves a "hard inquiry" which can result in a small, temporary drop in your score, if you can, wait at least six months between credit applications.
Depending on your total available credit, it might hurt your score to completely close a credit account with a high credit limit. The fact that you have been offered a lot of credit means you have demonstrated proficiency, and that credit utilization thing comes into play again. To make sure closing one card doesn't impact your score, pay off balances on all other cards.
And lastly, if you've just qualified to buy a home and are waiting to close escrow, this is NOT the time to buy furniture on credit, especially if your qualifying ratios are borderline. Before making any large purchases on credit, consult your loan officer. There will be a final credit check before you close, and if your number has gone down, you may risk getting your approval nullified.
Here's some general tips to help you increase your credit scores.
1. Pay down your balances to 30-50% of available credit.
2. Increase your available credit when possible.
3. Transfer debt to other accounts to get a better balance of 30-50% on each account.
4. Build new credit
5. Build old credit, use your zero balance credit cards for monthly expenses that you pay off each month so you are not paying interest on the account.
6. Use a variety of different types of credit.
7. Avoid changing addresses and jobs frequently.
8. Clean up your credit report, you can do it yourself or hire a pro. It's estimated that over 40 Million Americans have errors on their credit report.
9. Get a FREE copy of your credit report at www.annualcreditreport.com
Contact me for a referral to a professional if needed, I have been working with a great credit repair company for over 10 years. They have done wonderful things for many of my clients.
Thank you for visiting my blog, please leave a comment or question and come back soon.
Roxy Redenbaugh, Broker
Sr Mortgage Consultant
Residential and Commercial
The Greatest Compliment I Can Receive Is A Referral From Friends, Family, and Business Associates,
NMLS#269926 Company NMLS#1930219
