Credit Makeover: 12 Ways to Build Your Credit

Who doesn’t want to build credit? Everyone knows the lower your credit score is, the higher the interest rate and vice versa. Like you, my credit score could range from 300-850. So, the closer my credit score gets to 850, the happier I become.  What if I told you that whether your credit score is 520 or 750, you could benefit from reading this blog? If you follow these tips going forward, it will not only help build credit but you could potentially save hundreds or even thousands during the life of your loan or credit card debt. I know that I am eager and motivated to work credit-building goals for the New Year. How about you?

Your payment history contributes to 35% of your credit score. Past due or delinquent payments, as well as accounts in collections have a major negative impact on your credit score. The timely repayment of debt is one of the most important factors in your credit score. So, paying your bills on time each month will have a positive impact on your credit score. Don’t focus on the past, just make every effort to make at least the minimum payment on time going forward. The more you pay your bills on time, and the longer you pay your bills on time, the higher your credit score.

Paying more than the minimum required each month is an effective way to build credit. To makeover  your credit score, you want to focus on getting your revolving utilization as low as possible. The way to accelerate this makeover is to pay down or pay off your credit cards. Your amount owed contributes to 30% of your credit score. So, the most effective way to build credit in this area is to reduce the balances on your credit card as well as any other revolving debts. Another great tip is to avoid charging or carrying a balance close to your credit limit because this will also lower your credit score. Lenders consider this behavior a sign of a higher credit risk. A good rule of thumb is to not charge more than 30% of your credit limit on  your credit cards or revolving lines of credit. The lower your credit score, the higher the interest rates on your loans. So, reduce your balances on your credit card debt and any revolving debts by paying more than the minimum required each month. Ultimately, implementing these changes will give your credit a “makeover”.

Your new credit contributes to 10% of your credit score. The most effective way to build credit in this area is by only applying for/or opening new credit accounts as needed. Applying for/or opening too many new accounts in a short period of time is associated with being a higher credit risk, and a higher credit risk classification will lower your credit score. An inquiry is placed on your credit report when you apply for new credit and too many inquiries will affect your score. Opening up more credit accounts than I need gives me more accounts to manage, more opportunity to purchase on credit, and may make it more difficult to make my monthly payments for each of my cards on time. Therefore, also making it more challenging to pay down my credit card and revolving balances, or make the minimum payment on time each month. Many new credit inquires in a short period of time implies that you may be taking on more debt than you can handle or you are desperate for a loan. Avoid opening up more credit accounts than needed, and resist the temptation to open 4 new retail store cards while visiting the mall.

Check your credit reports for mistakes and then work to correct the error. With the Equifax breach, many individuals have had their information compromised. The most effective way to build credit in this area is by working to correct the mistake. Unfortunately, mistakes on your credit report may lead to declined credit, higher interest rates and may even prevent you from getting certain jobs that require you to have a satisfactory credit history. Typically, your credit report is updated within 30 days to show that the balance is paid in full. If not, you can dispute the item, and credit bureaus are then obligated to review the matter. Providing proof that a debt is paid in full will help to speed up the review. Otherwise the resolution of your dispute could take months versus weeks to update and reflect a positive change to your credit score. So, examine your credit report for inaccuracies, and then work to correct any errors. You can order or review your free credit report annually through annualcreditreport.com. Reviewing your credit report at least once a year will not affect your credit score as long as you order directly from one of them. You can also schedule a credit health education session with a certified financial services specialist at Apprisen to come up with a detailed action plan to help you with credit-building goals.

Apprisen offers a Credit Health Education session for those in need of understanding their credit score. Our certified Financial Services Specialist (credit counselor) will obtain a copy of your tri-merge credit report which includes scores and reports from Experian, Equifax, and Transunion. You will work with your FSS and they will teach you how to read and interpret your credit report. You will also review how to dispute inaccurate information, and they will show you how to protect yourself against Identity Theft. The credit health education session is offered in the over the phone, or via video conference. Call 1-800-355-2227 or visit us online at www.apprisen.com to discuss your financial concerns, and move one step closer to economic security.

Your full credit history contributes to 15% of your credit score. Therefore, the length of your credit history is important. Closing a credit card account that is paid in full can actually lower your credit score by reducing the length of your credit history, and negatively affects your utilization rate by increasing your credit utilization. Keep in mind, increased credit utilization lowers your credit score. So, the most effective way to give your credit a makeover in this area is to avoid closing accounts once they are paid in full. The longer you pay your bills on time, the higher your credit score.  Avoid closing accounts that are paid in full, and avoid closing unused credit cards as a short term strategy for your credit. If you have overwhelming credit card debt, then it could be in your best interest to close the credit cards while on a debt management program. Especially if you are falling behind on your payments. This is done in trade for a lower interest rate. Debt management agencies, such as Apprisen works with the creditors to reduce the interest rates, and waive late fees going forward. The great thing about a debt management program is that it allows you to quickly pay down the balance, because more of your payment is applied towards the principal while on the program versus when you pay your creditor directly.

The type of credit and finance history contributes to 10% of your credit score. The use of debit cards will not build up or improve your credit history, because their use is not reported or reflected on your credit report. Debit cards are useful, but avoid paying for everything with a debit card if you want to either build up your credit. Therefore, one of the most effective ways to work on your credit-building goals is by using a credit card responsibly to build credit. In addition, avoid getting a loan or opening new accounts with a finance company or payday lenders. A finance company account on your credit report could bring down your credit score because their interest rates are much higher than the rates at the local bank or credit union. As a result, the terms are typically less favorable, which may increase your risk for default. Unfortunately, using a finance company is weighed as a higher credit risk, and may negatively impact your credit score.

Borrowers with a lower credit utilization or debt to limit ratio tend to have a good credit history, and is associated with being a lower credit risk. The larger the contrast between the original loan amount and your current balance, the better your credit history. When your credit card balance is over the limit, then you credit utilization is above 100 percent, and is associated with being a higher credit risk. Fortunately, running up your credit card balance isn’t usually reported to the credit bureaus, if you are able to pay down the balance before the billing date listed on the statement. However, going over the credit limit increases your credit utilization and lowers your credit score, and a lower credit score leads to less than desirable financing. So, work towards maintaining a lower credit utilization, and avoid going over the credit limit.

Credit cards or loans you’ve co-signed for are listed on your credit report and impacts your credit score. If your friend misses a payment or simply decides to stop making the payments, your credit is affected as if the loan or credit card debts were yours. So, avoid co-signing for anyone. If you have already co-signed for a friend make sure they make the payments on time each month, or at the very least let you know if they are struggling to make the payments as scheduled. You may find it necessary to make up any missing payments, and then work with them to get financing in just their name.

Paying off delinquent accounts that are less than 7 years old will help build your credit. After 7 years, the delinquent debt should drop off your credit report. If you make a payment on a delinquent account that is more than 7 years old, the creditor may restart collection activity or legal action. If you’re determined to pay on a debt more than 7 years old, then pay it off. However, please think twice about making payments. Paying off the more recent collection accounts will help with your credit-building goals, more than paying off an older delinquent account first.

If you did not qualify for a mortgage as a result of inaccurate information, then disputing the discrepancy may be the difference between an approved mortgage loan and a declined loan. Typically, your credit report is updated within 30 days to show that the balance is paid in full. If not, you can dispute the item, and credit bureaus are then obligated to review the matter. Providing proof that a debt is paid in full or proof that an error was made will help to speed up the review. Otherwise the resolution of your dispute could take months versus weeks to update. Once the dispute has been reviewed and approved, it often results in an updated credit report. This service is only offered to mortgage lenders and there is a fee associated with this service.

If you are having problems making your credit card payment each month, our Financial Specialists will assist you in managing your budget and your household expenses. Our Specialists understand the anxiety associated with your financial concerns. Most clients leave the appointment with an action plan and the confidence to improve their financial health. A comprehensive review session, which includes a review of your budget, and a realistic action plan is offered free of charge over the phone, or via IRIS. We can assist with this and can also assist in lowering the interest rate. Contact us to discuss your financial concerns, and move one step closer to economic security.

If you follow most of these 12 tips, you will not only build credit, but they may help you potentially save hundreds or even thousands during the life of your loan or credit card debt. Please like and share this post, and visit us  at www.apprisen.com/blog to view other useful blogs.