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CREDIT SCORES LOANS & CREDIT HOW TO BUY BAD CREDIT BUDGETING |
Your Credit Report Scorewhat to do about it. If you are concerned about your credit report score and wondering what to do about it, read the following tips on taking charge of your credit future and raising your credit report score. With a little patience and a lot of persistence, you may be able to add significant numbers of points to your credit report score within a few months. Paying on time Late payments on regular monthly bills will quickly reduce your credit report score and should be avoided at all costs. Bank loans and credit card debt are probably the easiest to miss paying as they are not as life-threatening as forgetting to pay the electricity or gas bill. If you are internet savvy, one of the best ways of avoiding late payments is setting up automatic payments through your financial institution’s website. Credit unions are perhaps the most amenable to this form of bill payment as some banks may charge for the service. Automatic payment of your major bills will help you avoid the hit to your credit report score from going more than thirty days late and is handy for the perennially forgetful like myself. If you are in danger of a job loss, you can take steps to protect at least your credit card debt from showing up as late payments if your severance or unemployment benefits run out. Most major credit card issuers offer programs that will cover your monthly payments if you lose a job or become disabled. Of course you won’t want to wait until you are out of work before you set these up. And you won’t be surprised that they come with fees attached. Closing Accounts Credit scoring companies put a lot of weight on the length of your credit history. I have spoken to many people who thought shutting down their credit cards would improve their credit report score. Sadly, this is not necessarily so. Closing newer credit accounts may well improve your score by reducing the amount of credit you have available and the chance that you may go out on a shopping spree. But closing your oldest accounts reduces your credit report score because it removes you longest history of payments from consideration when your score is compiled. Accounts you will want to close are the obvious ones like utility and telephone services if you move houses. You would be surprised at the number of instances I have encountered of well-intentioned people who move across the country and wrongly assumed they had got the final, final bill from their gas or electricity company. If you have moved recently, or are planning a relocation, make sure your utility or cell phone provider has a forwarding address. I closed an account in December with my natural gas provider, only to be surprised by a residual bill the following March. Moving abroad is particularly tricky as your mail may never follow you for several weeks, if not months. And if you are in the military and stationed abroad, be very careful to ensure that someone back home is taking care of your bill payments. Some military personnel incorrectly assume that the Soldiers and Sailors Relief Act suspends their obligation from paying recurring bills. Credit card imbalances Let’s says you have three credit cards with limits of $10,000, $5,000 and $4,000 each and you are carrying balances on all of them or are about to make a large purchase using one of the cards. You would assume it may be best to use the card with the lowest interest rate and this may be the one with the $4,000 limit. But your credit report score could take a hit while you are trying to minimize interest charges. That’s because your score can be adversely affected by having a high debt to credit ratio on one of your credit cards. If your big purchase cannot be avoided, use the card with the higher available total credit to lower the impact on your credit report score. Paying down your debt Lowering your total debt to income ratio can have a dramatic effect on your credit report score as the scoring algorithms are reported to weigh heavily in favor of your ability to “cover” your debt. If you are running on fumes from month to month, as I have done at some point in my life, you know it will take serious discipline to chip away at your debt. One of the most obvious ways to reduce your monthly outlay of cash and thus provide more funds for your debt-reduction plan is to avoid recurring expenses like the plague. And the ugliest of recurring expenses can be that old staple, the car loan. I have avoided paying a car note since 1982 by buying a succession of modest used cars that I have rigorously maintained. I can hear you groaning now and I realize this is not for the faint of heart, but if you are struggling under a $400 or $500 installment loan, you may be shoveling your hard-earned paycheck down a pit. You could save yourself one or two hundred dollars each month by switching to a used car and purchasing an extended warranty. Goosing your credit report score What if you are fresh out of college or just stepped off a plane and have no credit? You may be surprised to learn that no credit is worse than bad credit just as no track record is worse than a spotty but existing track record. If you have made it though college while avoiding the credit card trap to which many college kids succumb, one of the easiest ways to jump start your credit report score is by applying for a secured credit card. You can do this by depositing some cash in a restricted account. Most banks will issue you a credit card with a limit set by the amount of cash you have deposited. If you use the card regularly and pay on time, they may then lift the restriction on your deposit and change your account to a non-secured designation. After you have developed a feel for paying your credit card on time, it may be a good idea to call your credit card issuer and ask them to raise the limit. Remember, the higher your debt to credit ratio, the higher your credit report score is likely to be. Oddly enough, an auto loan can work wonders for building your track record as a disciplined payer, and building a flawless credit profile will improve your score, provided your income comfortably exceeds the debt you are taking on. Avoid card collecting sprees I have seen many instances of consumers carrying credit cards from several well known department stores and electronics and computer manufacturers and retailers. You should avoid a proliferation of credit cards with small limits like the proverbial plague. And be very careful what you sign up for, whether on the internet or at in-store promotion booths. Paying off old debt I am reluctant to advise you to avoid paying off old debt as I am a stickler for living up to my personal obligations. This may become a matter of personal choice for you but you should know that paying an old debt that has languished on your credit report for years revives the account as a current collection activity, a certain means of lowering your credit report score. Better to boost your score, sign your loan, then pay off the old debt. All this sounds simple enough when you are reading about it but
can be difficult to put into practice. Remember that there is no
quick fix for boosting your credit report score.
It will take discipline and patience and will create some annoyances
in your life, but in the long run it can save you bucketsful of
cash. |
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