How To Improve Your Credit Score
Fix Errors
First and foremost, get a copy of your credit report. You are allowed one free copy per year. Go through the entire report and look for errors or outdated information.
Write to your creditors to dispute/fix the information.
They are required to respond to you within 30 days. If they do not respond to you within that time, you can contact the credit bureaus to remove the negative remarks from your credit report.
I have heard wondrous things about www.thecreditguru.com who do all of this for you for a fee if you do not want to make the time to do this yourself.
Pay Off Your Debt
If you have balances that are in high amount of your available credit (pretty much anything over 20-30% of your total available credit) - pay it down. You do want to keep a very small balance on at least one of your cards to show that you are responsible for making payments on time.
Start paying down whatever has the highest APR. That's where you are paying the most in ridiculous finance charges. Get rid of it first.
Be Careful Closing Accounts
Closing off accounts that have a long history can be bad for your credit. You want to show that you are responsible for the longterm! If you can, keep accounts open that you have had the longest.
Do NOT close accounts that have a remaining balance. This will damage your credit. Pay it off first.
Here is a double-edged sword for you: There are two factors that are weighed in you applications for credit. 1) total amount owed and total available credit (sum of all balances to sum of credit limits). So closing accounts will lower your sum of credit limits and can essentially hurt your score. 2) total available credit - if you have too much available credit - this can be seen as "risky" because you have the potential to use it. Try to find a healthy balance. Maybe instead of closing accounts, ask your credit card companies to lower your available credit.
Pay On Time
Your credit is filed and scrutinized over several years. So one mistake can be costly but unless you win a dispute, it is hard to have a negative mark erased from your credit report. You will be stuck with it for up to 7 years! However, the last 12 months are the ones that really count.
A Starting Point
When I want to get back on track with my personal finance situation, I do the following:
Order a Credit Report - review it for any oddball things I am maybe not aware of (I've seen a collection from unpaid parking from 2 years ago on my report - yet I had no notices from the collection people and had no idea this existed!). Fix everything possible.
Write down on a grid:
| Creditor | Balance | Available Credit | Credit Limit | APR% | Payment Due Date | Payment Address |
|---|---|---|---|---|---|---|
| Visa | $2000 | $2000 | $4000 | 28.99% | 26th each month | 123 IOU Drive, CreditCardCity, Delaware, 12345 |
| MasterCard | $100 | $3000 | $3100 | 9.99% | 15th each month | addressofcreditorhere |
| Discovercard | $200 | $5000 | $5200 | 15% | 4th each month | addressofcreditorhere |
If you do not have all of the above information, call all of your credit card companies, student loan people, phone people, utility people, cable people, cell phone people, mortgage people and get it from them.
If your APR is high, while you are on the phone try to negotiate a lower APR. If they cannot lower it they will tell you something like "make 6 payments on time and call us back".
GET YOUR DATES STRAIGHT and PAY ON TIME
Now with the above example, notice that the payment due dates are all over the place. Most companies will let you choose your due date. I would call them all and make them the same date.
I get paid twice per month. My first month bill is dedicated to the house. My 2nd monthly paycheck is dedicated to bills. All of my due dates are at least 1 week after I get paid in the last half of the month so that I have time to pay them all ON TIME.
Put on your calendar a reminder to "PAY BILLS". If a bill is the same amount consistently - prewrite checks for a year, put them in an envelope and stamp them and have them ready to go on a certain day of each month.. or sign up for bill-pay.
PAY MORE THAN THE MINIMUM
Plan an attack on the card with the highest balance and/or highest APR. The finance charges are killing you. If you have several cards with balances, I would pay MORE than the minimum on the card you are attacking first, and then the minimum (or slightly more) on the other cards to keep them at bay until you can focus your plan of attack on them.
MINIMUM 0.00
Do you ever get a minimum payment of $0.00? Credit card companies are trying to look nice here, but really they are handing it to you in finance charges when you don't make a payment anyway. So if the minimum payment is 0.00 PAY SOMETHING!
KEEP YOUR BALANCE UNDER 30% OF THE LIMIT
Maximize your score by keeping your balance under 30% of the limit. For example, if you have a $1000 limit on a card, try to keep a balance at $300 or less. This will help MAXIMIZE your score. Creditors like to see that you are using your cards responsibly.
ATTACK WITH DILIGENCE
Keep the grid updated. It will make you feel better to see your balances slowly decline and eventually disappear. Any extra money you have should go to this attack until you feel it is manageable. You will be surprised how fast you can get rid of debt.
Where to find some hidden money
Itemize your bank statements over the last 3 years (every month for the last 3 years). If this seems too arduous do it for at least one year but keep in mind there are anomolies that you will have to be aware of if you limit yourself to one year. Categorize in ways that you think you might be spending a lot of money but you want to know for sure. (For instance, one of my categories was "coffee and cigarettes". When I found out my average annual spending on these two vices, it was not hard for me to quit).
Check your bank statement and credit card statements. I was surprised to see how many useless things I was subscribed to and totally forgot about! Magazines, gym fees, multiple "dvd-by-mail" subscriptions, and other memberships to things I may have been interested in 4 years ago!
If you consistently buy magazines at the stand, consider going to subscription - you will save money.
Grocery shopping - make a list and stick to it. Shop once or twice per week versus everyday and make a point to use everything in your fridge. (Have leftover mashed potatoes? Make potato cakes!)
When you start becoming alert of where you are spending your money, you will spend less of it.
