Financial Mindset

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Your Financial Report Card:  Tips on How to Improve Your Credit

Your credit score is kind of like your report card for financial stability and should be treated as so.  However, many Americans abuse their abilities to get and use credit.   Recently, I had a slight credit crisis when I applied for a loan and was denied.  After the initial panic subsided, I did some research and began taking all the proper steps in figuring out how to fix my credit beginning with a decision to meet with a financial counselor.

As many already know, your credit score is a very important number that lenders use in order to determine whether or not to give you credit.  But, what most don’t know is that the interest rate and terms of each loan are directly affected by your current credit score.  The lower your score, the less likely you will be approved for loans.  However, even if your score is high enough to be approved, it still may be too low to qualify for a low interest rate, in turn leaving you with a much larger hole in your pocket.

Here are some tips on improving / building your credit score:

1. Know Your Credit ScoreCheck it And Monitor it!

There are several companies that allow its users to monitor their credit for a small monthly fee of under $20.00.  These companies show you your entire credit history from one or all credit bureaus (Experian, Trans Union and Equifax).  By knowing your entire credit history you can manage your finances, possibly prevent identity theft and be more in tune with your financial future.  A legitimate website we currently know for checking your credit score yearly for free is – www.annualcreditreport.com

2. Make ALL of Your Payments on Time

When determining your credit score, payment history is often one of the largest factors credit bureaus will take into consideration.  Therefore, above all else, the single most important thing you can do in building an A+ credit score is make your monthly payments on time.  By doing so, you are assuming ownership of your financial responsibilities.

3. Get a Credit Card

The only way to build credit is to open a line of credit.  A credit card is a great way to begin building or re-building your credit.   But, make sure you know what you’re getting yourself into before you sign up (actually read the fine print).  As mentioned earlier, credit card companies will intentionally hike up your interest rates if you are working on building or rebuilding credit.

4. Cosigning on a Line of Credit

Let’s say your friend tried to get a credit card and was denied.  The card company will require a cosigner before your friend can be approved.  Though you would be helping your friend out when you decide to become the cosigner, you may want to know the responsibilities before you make any final decision.  If you co-sign, know that you are 100% responsible for your friend’s debt.  If they miss any payments, this affects your credit as well.  Helping out a friend is always a positive, but just make sure you understand the liability behind it.

5. Less is More

The best way to build up solid credit is to build up and watch closely only a few credit lines, the more credit lines you have, the more bills, charges, and fees you potentially have to worry about.  Also, the more likely you are to be targeted for identity theft.

6. Pay Down Existing Cards

It is advisable to always pay off all of or at least 70% of your card(s) each month.   For example, if you have a credit card with a $ 1,000.00 limit, try to keep your available credit at or above $700.  This shows that you are accountable for the charges you make.  Consider charges you make as quick loans that you must pay back ASAP.

7. Do Not Cancel/Close Credit Cards

Having a revolving line of credit for a long period of time shows responsibility on your part and shows your ability to pay off your debt.  Credit score companies view canceling a card as a negative so try to leave cards open even if you don’t use them anymore. Just cut them up, never close them. However some credit cards have an annual fee, so check to make sure your card doesn’t have one if you decide to cut it up. If you miss the payment on an annual fee you could ruin your credit score and incur even more unwanted fees.

At the end of the day, be responsible with the use of your credit card.  Keep in mind it is not your money that you are spending when you swipe your card. It is simply a loan that has been given to you by a bank with strict requirements.  If you don’t have the money, you shouldn’t be charging your credit card.  Do remember your credit score will hold you accountable so take care of it, build it up, and use it wisely!

 

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