How to Obtain a Higher FICO Credit Score
First of all, you need to know that credit is power. What credit means to you – it’s not only a way of life, it’s vital to living. You can’t live life without good credit. Bad or no credit is just that – Bad! It’s of no use to you. In fact, it’s a hindrance. It prevents you from purchasing a car, a home, or obtaining credit cards or loans. On the other hand, good credit let’s you do all those things you can’t do with poor or bad credit or even no credit. And the better your credit is, the more power you have. With good credit, you can purchase a new car, a home, get a loan to open up your own business, and even get a good job. Yes, some employers will not hire you unless you have good credit. So if you’ve never thought about it before, start meditating on it now. Credit is power. I can’t say it enough. If you don’t have money or good credit, you are SOL! If you don’t have money, but you have good credit, then you can borrow the money you need. Thus, credit is power!
This scale determines how credit scores are rated:
Excellent Credit = 775
Good Credit = 700
Poor Credit = 550
(These figures were retrieved from www.creditreport.com.)
Obtaining a higher credit score may seem impossible, especially now in these economic times, but it is doable.
The first thing you need to do is to set some goals. They must be attainable goals. You should decide which debts you want to pay off and how long you think you’ll need to accomplish this. Credit cards should be the first items you pay off. They are the things we need the least. Mortgage and car payments are understandable debt items. That’s not to say that you can’t or shouldn’t pay those off too, I’m just saying that you should start with the items that are unnecessary.
Next, the thing that you should do is pay your bills on time, in particular, your credit cards, your mortgage, your car payment, and any loans you might have.
The third thing you can do is to pay more than the minimum due. This works especially well with credit cards, but you can apply this concept to just about all debt. Of course, this is something you should do only if your pocketbook allows. Don’t use half of your budgeted food allowance on an increased payment. These extra payments should be done with care and consideration.
For example, let’s say that you’re trying to pay off your credit cards. It’s always best to start with the smallest one first. (The one you owe the least amount on.) If your minimum due is $50 a month, and you can afford to send in $100 this month, then by all means, do it. But remember, don’t short change anything else to do it, i.e., your car payment or money for groceries.
However, if you are willing to make some sacrifices to get your debt paid off, then you can reduce your entertainment budgeted amount to make an added payment to a credit card. This just means that you are not going to the movies this month. That’s your sacrifice. Then you can go to the movies next month. And then the month after that, you can make the sacrifice again.
Here are some more ideas that may help you get enough extra money to help reduce your debt:
Stop going out to eat. Take a sack lunch to work. If you go out to eat 3-5 times per week, then maybe you can reduce it to once a week, say Friday, or even once every two weeks. You’ll be surprised how much you will save. Then, with the money that you saved, you can apply that toward the credit card or other debt item you are trying to pay off.
Have a yard sale. We all have junk lying around. Let’s face it, we tend to hoard things. We keep telling ourselves, “I’m going to use that one day.” Or, “I’m going to get back into that (size wise).” And before you know it, a year, two years, or three years have gone by. You didn’t use it or fit into it. The junk can apply to clothing, dishes, tools, decorative items, jewelry, etc. Get rid of it. You can make some money to get out of debt, and you can clean your house at the same time. How wonderful is that? Plus, you’re going to find things you didn’t even remember you had. Sell, sell, sell. Make sure to keep your focus. You have set goals to pay off your debt. And if you are dedicated and disciplined – you can do it.
Sell larger items. If you have an extra vehicle that you are not using, consider selling it. You might miss seeing that ton of metal sitting in your garage, but you’ll also love getting out of debt. Other large items that you can consider selling are: boats, antiques, appliances, and furniture. You can use internet tools, such as Ebay and Craig’s List to help you sell the larger items.
If you have an extra bedroom, you may want to consider getting a roommate. Colleges usually let you post ads for roommates. You’ll also be helping college students who are in need of a place to live while attending school. Plus, you’ll be helping yourself to get out of debt. The money you collect on rent can be applied to the debt you are trying to pay off. You can use Craig’s List to place an ad for this purpose also.
Fourthly, whatever you do, don’t close your accounts. Okay, you worked hard and you made sacrifices and you’re ready to send in the final payment on that credit card or other debt item – congratulations! But don’t close that account. This actually applies to credit cards, and it can hurt your credit by closing these accounts. The best thing to do is pay the credit card off and then cut up the credit card. Keep a record of your payments and when you paid off the credit card, but don’t close the account.
You should always keep an active major credit card on hand for emergencies. But don’t use your credit cards to go out to eat or to buy gifts or clothes. Cash is always best. Remember this rule, if you can’t afford to purchase it with cash, then you don’t need it.
By not closing your accounts, you are actually giving your credit a longer history record. This can improve your credit score. For example, let’s say you had a credit card for six months and you paid it off and closed the account, that’s a short credit history. But let’s say you had a credit card for three years and it took you another three years to pay it off and now it has a zero balance, but it’s still open. Now you have six years of history on this credit card and it’s still ticking. You’re still accumulating more history on this credit card because you left it opened. So don’t close your accounts, keep them open.
Fifth, if there are mistakes on your credit report, go to your local credit bureau and ask them how you can fix the items in question. They usually have forms that you can fill out. These forms are for disputing items on your credit report. This is a long process and sometimes it works and sometimes it doesn’t, but you should do it anyway. Your credit score is worth it. They can usually give you a copy of your credit report for a nominal fee, that is, one that contains your score. Usually, you can get a free report if you have been turned down for credit. Take the denial letter with you when you go to the credit bureau.
The sixth thing that you can do to improve your credit score is to not apply for credit. Don’t apply for credit unless you absolutely have to. Every time you apply for credit, this is referred to as “a credit inquiry,” and every time an inquiry is done, it reduces your credit score. Credit inquiries and considered a negative item when a potential creditor is looking at your report. And the more inquiries, the worse it is.
The same thing applies when you pull your own credit report. National credit reporting agencies (Experion, Equifax, and TransUnion) advertise that you can receive a “free” credit report. Well, I hate to burst your bubble, but it’s still an inquiry. And let’s get to the bottom line. All that they are really doing is updating their databases so that creditors or “bill collectors” can find you. The credit bureaus or agencies really work for the creditors – NOT FOR YOU, the consumer. So “free” is not always a good thing.
The last item you can do is don’t. Don’t use credit or debt consolidation companies. They are also referred to as debt settlement or debt negotiation companies. They are just taking your money. They won’t help your credit score. In fact, in most cases, they really are hurting you more than helping you. Unfortunately, they can further damage your credit score or ruin it altogether. If you follow the rules and suggestions above, you can do what these companies claim to do all by yourself. They say they can reduce your interest rates and lower your monthly payments. Yeah, you will probably pay less total monthly debt payments, but it’s going to take you longer to pay off your debt now because you’re also paying that company. They are not free! If you use one of these companies, you have just created a new debt. Don’t use them, you can do everything yourself that they claim they can do, and more. In fact, they say they will do it, but anybody can tell you what they will do for you to get you to sign on the dotted line, but actually doing it is a whole new ball game. They are not going to let you watch as they make payments to your debts. You’re not going to listen when they say they will call your creditors. How do you really know that they are doing anything for you? One thing for sure is that they are going to take your money. They will pay themselves first before they will ever make a payment on any of your debt. And you can bet that every one of your accounts will be closed and will be marked as “bad debt.”
You can call the credit card companies and ask them to lower your interest. They want to work with you. It’s better if it comes from you and not some third party. However, this economic crisis has made the credit card companies tougher. So they may not grant your request. But if they don’t grant it to you, they won’t grant it to the debt consolidation companies either. But, at least give it a try. It’s definitely worth a shot. And don’t stop at one. Just because one company won’t do it, doesn’t mean the next company won’t. And keep trying. You know the saying, “if at first you don’t succeed, try, try again.”
Another thing to keep in mind is that if you can’t pay more than your minimum amount due, don’t worry about it. You’re doing great just paying the minimum amount due, and don’t let anyone tell you otherwise. You may think you will never pay it off, but you will. You’re also working on your credit history. Every month that you make a minimum payment is another month of credit history. And you’re saving your credit too!
In summary, stay positive, stay focused, set goals, make sacrifices (yard sales, no eating out, etc.), follow the rules and suggestions above, and do all your credit repair/improvements on your own. You’re on your way to improving your FICO credit score!