Many of us do not comprehend the way it work. The card accounts with outstanding balances spoil the scores and rating, when you pay bills on time. If you close an account it lowers the credit scores while a short credit history delays life’s biggest milestones like buying a home, or a car. When debt is unmanaged and bills are paid untimely, it affects the credit scores.
A credit scores range from 250 or 300 to 850 or 900 as every industry sets their own range. It can get overwhelming to improve the scores from low to high and takes a period of one year. However, it is a Herculean task to improve the credit score by 50 points or more over 6 – 12 month period. Here are 5 steps to take to improve your credit according to Fred Franks of Local Realty Service and Katrina Barone of Housesforsaleinocalafl.com:
Step#1 Check the report
Make it a practice to understand your report, scores and the way they work, whilst you do not intend to shop for a house, a car, or another credit card. There are various free online services available like annualcreditreport.com while some others charge $10-$15 for the reports. Once you know your current score, it is easier to monitor the fluctuation and progress in the score.
Step #2 Look for Negative Items on your Report
Transactions that cause creditors to consider your account risky like – late payments, foreclosures, tax liens, bankruptcy, and the account are with the collections department. Clearing the negative information effects on the score takes 7 years from the credit reports.
Review the information from every agency in detail, including the balance and payment history, and inquiries. Look for discrepancies or negative information, and prepare a list of items to dispute. Inform the bureau about the inaccuracy, and explain the dispute. Request for a correction by stating the facts and wait for the report to show accurate information.
Let the creditor know of the dispute, in writing, and wait 90 days for the issue to resolve. If the issue does not resolve, file a complaint to the Consumer Financial Protection Bureau (CFBP). Once the corrections are done, if the credit score is lower than 680, you do not qualify for the loan at low interest rate.
Step#3 Implement a strategy to improve the score
It is crucial to implement a strategy to improve the credit score; fix the credit issues. Credit history forms 35 percent of the score and if you have problems paying bills on time, fix it and get current on past dues and stay current. Implement the strategy to improve the score gradually and maintain it.
Step# 4 Keep a low utilization rate
It is advisable to stay within the utilization limit. At any time the debt utilization rate if it exceeds 30 percent of the credit card limit, this will cause a dent in the scores our credit score will take a hit. If the utilization rate increases further to 50 percent, while the score moves negatively by 20 to 50 points. Another possible strategy is to move credit card debt around to reduce the negative impacts. Avoid credit card debt by purchasing that, which is payable in full, avoid debt accumulation.
If the debt is due to the misuse of your cards, it is advisable to pay the minimum due each month, on time. This will indicate that you are a responsible borrower. Apply for a personal loan; pay the credit card debt as the credit card rate of interest is higher compared to personal loans that may be 4.25 percent.
According to a study, the average increase in the score was 31 percent, using the personal loan to pay off credit card debt. Once this is paid do not accumulate credit card debt.
Step #5 Maintain the Credit card account
Resist the urge to close the credit card account. Instead, maintain the card by making small payable purchases. It is advisable to open a line of credit using a secured credit card. Maintain it by making small payable purchases. The credit scores will increase remarkably.
Follow all the five steps diligently, avoid the mistakes committed and deal with the issues responsibly to improve your credit scores.