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  • Valerie Smith

Strategies for Improving Your Credit Score

Having a good credit score will save you money and make your life easier. If your credit score is high, it will be easier to be approved for a rental home or apartment. You’ll receive lower interest rates on loans and credit cards. You will be more likely to be approved for these loans and credit cards, and have more negotiating power to shop for car or house loans. You may avoid security deposits on utilities and cell phones, and lower car insurance rates.


On the flip side, with a low (poor) credit score, it may be more difficult to be approved for a rental home or apartment. You’ll receive higher interest rates on loans and credit cards. You will be less likely to be approved for loans and credit cards, and have less negotiating power to shop for car or house loans. You may have to pay security deposits on utilities and cell phones, and have higher car insurance rates.


Recognizing Attitude of Resignation


Some people will live with a poor credit score their whole lives simply because they feel overwhelmed by their situation, and do not even know where to start to improve it. The attitude of “resignation” (“what’s the use”) is one of the five “hazardous attitudes” pilots are taught that can create risk and danger during a flight. Resignation is not unique to pilots or flying – this hazardous attitude can create risk in your life. Many people have this attitude of simply giving up and letting a bad thing continually get worse about life events. For example:

  • A semester of calculus isn’t going well, so rather than study harder, a college student will continue to not turn in homework and do poorly on quizzes and tests until they have failed the class.

  • An overweight person may say “what’s the point?” about eating salad instead of a high calorie meal, as one healthy meal will not make a difference in achieving a weight loss goal.

  • A person has several “30-day lates” on their credit report and high balances. Instead of taking steps to improve their credit, they continue their pattern of being irresponsible with their finances and do not pay their bills on time.

The Antidote to Resignation


For all five hazardous attitudes of pilots, antidotes have been developed to become aware and to counteract the hazardous attitude. The published antidote to the hazardous attitude of resignation is “I’m not helpless, I can make a difference.” This same antidote can be applied to many life situations that feel overwhelming. Sure, it’s easy to attribute difficulties and struggles to bad luck. You may have medical bills, or student loans or a mountain of credit card debt. But you have the power to make positive choices going forward. You can pivot your financial choices right now, spend less, pay down your bills, and completely turn your current situation around.


Step on The Credit Scale


In much the same way overweight individuals may avoid checking the scale, people with poor credit may avoid checking their credit. You may feel, the situation is beyond any repair, and knowing how bad it really is will only discourage you, because you won’t be able to do anything about it. Shying away from situations which may shine a light on weaknesses is natural. However, much like stepping on the scale that first day at the gym, understanding your starting point is essential to planning your future. It doesn’t take a financial windfall to improve your credit. If you want to improve your credit score, start by checking your credit.

Eliminating Errors on Your Credit Report


Along with understanding your starting point and current credit situation, checking your credit is important because it allows you to check for errors or inaccurate information. Common errors found on credit reports are:


  • Incorrect personal information

  • Closed accounts still reported as open

  • Accounts that don’t belong to you, for example, someone with the same name.

  • Accounts reported in duplicate

  • Accounts opened due to stolen identity

  • Outdated information.

Understanding How Your Credit Score is Calculated


Your FICO credit score is calculated based on various weights:

  • Payment history (35%)

  • Amount owed (30%)

  • Length of history (15%)

  • New credit (10%)

  • Credit mix (10%)

As you can see, the most weight is given to payment history. This means, that the biggest part of your credit history is paying your bills on time. More weight is given to more recent events. A thirty day late in the last year will have more weight than a thirty day late six years ago. Although you cannot establish a positive payment history overnight, you can turn your history around significantly over the course of 4-6 months. If you need to, keep a calendar of due dates, and either set up automatic payments, or pay your bills at least a few days early. Once you have paid all your bills on time, it’s time to pay down the amount owed.


Should You Cut Up the Plastic?


Being financially responsible is much more than being able to make your minimum credit card payment on time each month. Ideally, you should be paying your balance in full each month and living within your means. Depending on your level of debt and level of self-control, you may need to cut up your credit card, or stick it in a safe place at home, where you won’t be able to access it for everyday spending. Although it may be necessary for you to stop spending on your credit cards, you should not close out your credit card accounts, as this could hurt your credit score.


Consider Consolidating Credit Card Debt into a Personal Loan


If you carry a large amount of revolving credit, especially high interest credit cards, you may consider “consolidating” that revolving debt into a personal loan. Although it will not change the actual amount you owe, your debt will be reclassified from “revolving” to “installment”. This may boost your score as installment loans (personal loans, car loans and mortgages) as credit scoring agencies generally consider installment debt less risky than credit card debt.


Consistency Is Key


If you have multiple debts (as many people do), choose a strategy and stick to it. Many people choose to pay off lowest balance debts (debt-snowball), or highest interest debts first (debt-avalanche). Use a debt payoff calculator to track your progress and don’t lose sight of your goals. Monitor your credit month by month. As your balances go down, your credit score will go up!


All information and materials in this article are for educational purposes only. Opinions expressed in this article are based on information considered reliable, but The Daily Money Show cannot guarantee the accuracy of the information nor should it be relied upon. The information discussed in this article should not be used as a recommendation to buy or sell securities nor should it be taken as investment advice. The Daily Money Show is not a Registered Investment Advisor or Broker Dealer. The Daily Money Show is not an accounting firm and does not give tax advice regarding any security or real estate transaction. You may want to consult with an accountant, attorney, real estate agent or financial advisor before proceeding with any transaction regarding securities or real estate.

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