Tim Sherman

Improving Your Credit Score Is Easier Than You Think

Explore ways to raise your credit score to improve your prospects in life through a combination of lowering monies owed, increasing the number of debt accounts in a controlled way, and spending time getting to know your finances.

This will help you have access to better interest rates, better interest rates, and more opportunities. Improve your score by setting up an emergency fund, reducing debt, resisting opening new accounts, and being patient.

Everything from cell phone plans to home loans relies on your credit score to decide if you can access financial services. So how do you improve a low score? Here are some tips:

Set up an emergency fund

Putting aside $1000 in a savings account will help ensure you don’t need to increase your debt load if something catastrophic happens. While $1000 won’t cover all of every possible emergency, it’ll at least act as a cushion while you work on raising your score.

A word of warning: Make sure you differentiate between an actual emergency and something that can wait. Actual emergencies would be things like a blown tire, a sudden emergency room visit, or a blown hot water heater.

Things that are not emergencies are expenses that can be predicted, such as new tires, a sale on flatscreen TVs, or a sudden weekend invitation.

Get rid of bad debt

Take a look at what debts you’re carrying that affect your credit score. Examples would be credit card debt, personal loans, vehicle loans, and home loans. Bad debt refers specifically to rotating lines of credit, usually credit cards.

This type of debt affects your credit score more than any other type of debt and contributes to two of the six factors affecting your score. Revolving debt should be treated as something you want to get rid of immediately. Put as much money as you can towards your credit card debts, and get them paid down as soon as possible.

Once you’ve paid off one card, put the payment from that one towards the next, and snowball your payments as you go. Once your cards are paid off, do not close the accounts- the purpose of paying off credit cards is to increase your amount of available credit, and closing the accounts will reduce it.

Don’t open new accounts

Despite the above statement, going and opening a series of new accounts to increase your available credit isn’t a good idea. Again, this impacts two areas of your credit report- recent inquiries and the number of new accounts. Opening too many new accounts in too short a period of time reflects poorly on your credit. You should aim for no more than one new account every two years.

Make your payments on time

If you let an account become seriously delinquent it’ll affect your credit in a huge way. The best cure, in this case, is an ounce of prevention- pay your bills on time, and make sure you don’t let an account go delinquent or get to collections. If you have to make a late payment, call the company sending the bill and discuss options to get caught up as soon as possible.

Set goals to move forward

Once your credit score has approved satisfactorily, set reasonable goals and make a budget to avoid ending up in the same situation. Study your bank statements to get a solid understanding of how you ended up with a low credit score, and brainstorm ways to avoid backsliding.

One important step is building a savings account with 4 to 6 months worth of expenses in it in case of job loss or other serious emergencies. Set other goals as needed.
Overall, the most important thing when dealing with improving your credit score is to be patient.

Many of the factors contributing to a low score require time to improve significantly, and others will be something you have to work on for a significant period of time. Setting other short-term financial goals can help keep you on track and will make the process a bit more rewarding.