Life
How to raise your credit score to A+
Having great credit (A+) is advantageous in that is provides one access to faster loan decisions, lower interest rates, and relatively easier access to capital. It is essential if you want to level the playing field with lenders.
The most widely used credit score is Fair Isaac Corp.’s (FICO) score, which ranges from 300 to 850. In the post financial crisis economy, lenders will demand a minimum credit score of 740 for the best mortgage rates.
That number can vary not only by lender, but according to the type of loan a consumer is applying for. For example, lenders awarding 30-year fixed-rate mortgages might consider a 760 FICO score to be A+, while those offering 36-month auto loans might consider a consumer with a 720 score or above to have excellent credit.
Having credit that is not good can hurt in a number of ways – credit information can and is used by:
– Employers concerned about higher risk of theft from those with financial troubles.
– Insurance companies to evaluate applicants and set premiums.
– Financial lenders.
– In some instances landlords to decide whether the applicant is able to meet their rent obligations.
It is possible to boost your credit score. It requires financial discipline, and attentiveness:
1). Dispute Mistakes and Errors:
Some bills, collections, chargeoffs could be inaccurate, too old or have the wrong date. You may have paid off a debt that still shows a balance outstanding. Getting these small errors fixed quickly will raise your credit score.
2). Know where you stand:
The three main credit bureaus Equifax, TransUnion and Experian provide a free credit report (provided that it is done once in the calendar year). It is worth your while obtaining this credit report, which will provide you with a good indication of where you stand.
3). Get a major credit card:
Retail cards and gas cards can help you build your credit history initially, but to get your scores into 700-plus territory you will need at least one major credit card: Visa, MasterCard, Discover or American Express. If you cannot qualify for a regular card, consider a secured version, for which you make a deposit with an issuing bank. Make sure the card reports to all three bureaus, and try to get a card that converts to a regular credit card after 12 to 18 months of on-time payments.
4). Arrange automatic payments for every card or loan:
Your credit score is very sensitive to whether you pay your bills on time, so never let travel, a busy schedule or forgetfulness destroy your scores. Most lenders will let you set up automatic payments that take an amount you specify, the minimum payment, a set dollar amount or the full balance, every month from your checking account.
5). A balance is a balance regardless of amount:
You have to worry about your credit utilization ratio even if you pay your balances in full each month. The balance that’s reported to the credit bureaus is typically the one on your last statement, not the balance that is left over after you pay your bill. So if you charge US$9,000 on a US$10,000 card, it’s going to look like you’re using 90% of your limit (which may impact negatively on your score), even though you paid off the balance in full when you got the bill.
6). Never let disputes go to collections:
Yes, your insurance should have covered that bill; no, you shouldn’t have to pay for a broadband connection that doesn’t work. But if you let commonplace problems like these escalate, your account will be turned over to collections and become a big black mark on your credit reports.
7). Pay down and spread out your debt:
More than a third of your FICO score depends on how much of your available credit you’re using. The FICO formula likes to see big gaps between your balances, whether you pay them off each month or not, and your limits, especially on credit cards. You are rewarded for paying down installment debt, such as mortgages and auto loans, but your scores improve much more dramatically when you pay down revolving debt such as credit cards. In short, it’s better to have small balances on several cards than a big balance on one card.
8). Do not let your cards gather dust.
Overloading your cards is a bad thing for your scores, but so is not using them at all. The scoring formula prefers to see accounts that are being actively used rather than sitting on a shelf. Even a little activity is better than no activity.
9). Shoot for 10%:
The less of your available credit you use, the more FICO rewards you. Keeping your credit utilization below 30% on your cards is good; getting it below 10% is even better. If you regularly use more, ask for a higher limit, spread out your charges on more than one card or make two payments every month, one just before your monthly statement closing date to lower the balance reported to the credit bureaus and a second one just before the due date to avoid late fees.
10). Apply for credit sparingly:
Applications for credit do not negatively impact your scores as much as some people fear; typically, you lose five points or less. But when every point counts, such as when you’re in the market for a mortgage or a car loan, you don’t want to squander any of your scores. Wait to apply for any other credit until you’ve secured the loan you want.