Many Americans are unaware of the methods that can be used to improve credit scores in a short period of time. Congressional laws have given people with bad credit the opportunity to restore their credit in much shorter time frames. Today, many consumers do not qualify for home mortgages, auto loans, even employment opportunities, because of less than perfect credit. United States credit repair laws can help, but most people do not know their rights under these laws. Currently, 70% of all Americans have compromised credit. Nearly 90% of Americans have errors, outdated, or fraudulent accounts on their credit profile. The threat of identity theft continues to rise, and skyrocketing personal debt, combined with multiple defaults on consumer credit accounts, have put the U.S. economy at risk. Fortunately, consumers can take action on their own behalf to remedy some of these problems.
In order to improve your credit score, it is important to ascertain your current financial situation. You are entitled to one free credit report per year, by FTC mandate. Once you know your credit score, and have checked the report for errors, there are some steps you can take to begin raising your credit score.
First, pay down your credit cards. Paying off your installment loans (mortgage, auto, student) can improve your score, but not as dramatically as paying down, or paying off, revolving accounts like credit cards. The credit-scoring formulas look for a substantial difference between the amount of credit used, and your available credit limits. Getting your balances below 28% of the credit limit on each card is crucial. Pay down the cards that are closest to their limits.
Make certain to limit your purchases, large credit card statements can hurt your score, regardless of full payment each month. What is used to generate your score, is the balance reported on your last statement. This does not mean paying your balances in full each month isn’t fiscally responsible, however the credit score does not recognize this. You can increase your score by limiting your charges to 28% or less of a card’s limit. Always be sure to check your credit limits on the report, your score might be unnaturally deflated if your creditor is showing a lower limit than you actually have. Most credit card issuers will update this information upon request.
Try paying your balance down or off before your statement period closes. View your last statement to see which day of the month that falls on, then about a week in advance of closing, remit the balance in full. Doing so won’t raise your reported limit, but it will increase the ratio between that limit and your closing balance, which should increase your score.
Use your older cards. Accounts that were established more historically, are given more weight. If you stop using your oldest cards, the issuers may cease to update those accounts at the credit bureaus. The accounts will still be live, but they won’t be given as much weight in the credit scoring formula as your active accounts. Use your oldest cards every few months to charge a small amount, paying it off in full when the statement arrives.
The final strategy I recommend is reducing your bad debts, this can be defined as debt that is created during the acquisition of that which is disposable or depreciates in value. Two key examples are high interest credit cards that are not paid monthly in full, and automobile loans. When you finance things that are consumable, rest assured, that this is creating bad debt. Purchases made with a credit card, when the full balances are not paid monthly, become a financial drain. The drawback with auto loans, unfortunately, is that when you purchase a new car, the moment you drive off the lot, the car loses value. Using the financing options available today, most people purchase higher priced autos than their financial situation allows. Payments amortized over multiple years can make almost any car affordable to anyone. However, after years go by, and the car is paid off, it maintains very little of its original value. These types of debts generally carry a much higher interest rates as well. Good debts are investments that eventually create value. Example, a student loan is taken out with the intent that it will increase the future earnings potential of the individual, additionally, home loans are good because generally, homes appreciate in value. When the home loan is paid off, the individual will be left with an asset with greater value than the original loan itself. So this adds wealth by generating net worth. An advantage of good debts, they carry much lower interest rates, and they usually benefit from many tax advantages as well.
If a home owner carried a $5,000 credit card balance, and was paying 19% interest, it is possible to use the home’s equity to pay off the $5,000 credit card balance and eliminate the 19% interest, and then carry the $5,000 at the lower interest rate of the home equity loan. This decreases total annual interest costs, as well as providing tax advantages. This may not always be feasible, but understanding the ramifications is important as a consumer.
Clearly, individuals control the course of their own financial future. Only by application of the proper methods can the correct plan be employed. Each day, move forward toward a pre-established goal. Visualize your existence as you wish it to be, act with force to manifest it. The mindset of an individual is the nexus of his reality. Create your reality by doing the things that cause success. You decide what you will become.
