Time you
realize the cold hard truth: to the big banks, you’re nothing but a
number. All that matters is your credit
rating, otherwise known as your FICO score. It’s a number between 300 and 850
based on your financial history. Your FICO score helps the banks decide whether
you qualify for charge cards, car financing, a mortgage, or insurance. The higher your score, the lower your
interest rate. More than a third of Americans have a rating below 650, even as
lenders are tightening requirements for loans. Now you need at least 750 to be
immune from the current credit card crunch. Don’t despair. Take these steps to
improve your score.
Pay Down Card Balances
Lenders pay
special attention to the amount of debt you are carrying on a card divided by
the total charge limit. If you have
$1000 of debt on a card with a $5000 ceiling, your credit utilization rate
(CUR) is 20%. Ten percent or less is ideal. People with the best scores use
below 7% of their available credit.
Automate Monthly Payments
We’ve all
paid a bill late or forgotten about one altogether, but it’s a mistake that can
linger on your record for years. Use the
technology available to you. Have reminders sent to you on your smartphone. Set
up automatic payments from your checking account. These two easy steps will
help you have a more disciplined budget strategy and you’ll never have to worry
about forgetting a payment.
Find and Fix Errors
Common
errors sneak onto your credit reports. Double-check your credit score by buying
your report from myFICO.com or by downloading a free report from each of the
three major agencies-Equifax, Experian and TransUnion-at
annualcreditreport.com. Get any mistakes removed as soon as possible. Contact
the agencies and the creditor in writing and by certified mail, sending alon
copies of supporting documents. They are required to investigate ithin 30 days,
and corrections should be made within a few months.
Boost Your Credit, But Don’t Use It
Your credit
utilization rate (CUR) and overall score get a bump up when you have access to
more cash. Call your credit card company and ask them to raise your limit. Even
paying off a portion of a monthly bill may allow you to qualify for a higher
limit. Also, if banks try to lower your
credit limit, as some are doing since the financial meltdown, complain and try
to get the decision reversed. Call and see if you can persuade them to change their minds and raise your
credit limit back up or even split the difference. Since these decisions impact
your CUR, don’t take negative changes lightly.
Don’t Close old Accounts
You might be
tempted to cut up credit cards once you’ve paid them off. Don’t. Lenders like to see long-term relationships with your
creditors. If you shut down an account altogether, you’re reducing your total
available credit. When you get those “balance transfer” offers in the mail,
remember if you shift your debts to a lower-rate card, leave the original card
active, too. If you don’t, you’ll be lowering your overall credit rating.
Limit Credit Report Inquiries
Each time
you apply for a credit card, rent an apartment, or get insurance, the company
places a “hard” inquiry on your credit account. Racking up three to five credit
inquiries in a short time can knock down your credit score by as much as 50
points. Companies don’t have to get your permission to run your credit, and
some will do it without telling you, even when it’s not absolutely necessary.
Read the fine print on everything and make it clear when you don’t want
inquiries placed.
Avoid Debt-Settlement Firms
If you’ve noticed
ads on radio or TV with firms claiming they can settle your debts for pennies
on the dollar, beware. Going this route can tarnish your credit record since
these companies actively withhold your payments in order to force your creditors
to discount your debt. This causes your credit score to sink lower. Eliminate the middle man, get intouch with
you lender, and work out a payment plan.
Good credit
is essential for getting loans, charge cards and more at interest rates you can
afford. Use these tips to give your credit rating a lift and youll pay less,
allowing you to save over the long haul.
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