Your Golden Ticket: 6 Ways to Manage Your Credit Score (With Minimum Effort)
Loans applications, debt payments, and interest rates are part of everyday reality for millions of Americans. Whether it’s car payments, student loans, the mortgage on your dream house, or something else, debt is common and sometimes necessary, which is why it’s so imperative to manage your credit score to ensure you get the most out of your financing and ensure it works for you (instead of the other guys).
First, let’s talk about the various elements that go into your score. Discussing the varies elements can help you identify areas that you could potentially improve or course correct to improve your scores without a ton of heavy lifting or paperwork.
Why Your Credit Score Matters
If you want to buy a new car, get a home loan, or borrow money from any institution, then they will undoubtedly run a credit check. The score that comes back can heavily influence everything from how much you can get to how high your interest rates will be for the life of the loan. Thus, having a higher score will put you in a better position to paying less in interest, which can save you a bundle.
So, with that in mind, let’s take a look at six different methods you can use to get your score up as quickly as possible.
Make Payments on Time
We know that paying your debts can be a challenge, particularly if you owe a lot of money. However, it’s always better to make minimum payments on time rather than making a late payment.
Overall, credit score companies like Experian weigh several variables when determining your score. The amount you owe is the most influential (more on that next) but making on-time payments is also significant.
If you can’t do anything else, be sure to make your debt repayments on time each month. Over time, this will help improve your score and show that you can manage debt responsibly. If necessary, schedule automatic payments through your bank so that you don’t forget when the time comes (late fees are no one’s friend).
Pay Down or Settle Debt
As we mentioned above, the amount you owe is the most critical defining factor of your credit score. However, it’s not quite that simple. There is also the concept called “credit utilization,” that comes into play here. Your utilization refers to the amount you owe compared to the amount you have available.
Let’s say that you have two credit cards with a $5,000 limit. If you owe $8,000 between the both of them, then that’s an 80 percent credit utilization, which will lower your score. Overall, the best range to be in is less than 30 percent.
However, if you’re close to paying off debt, it’s actually better to have some than none at all. Having a little bit of debt means that you continue to make payments on time, which keeps your score high. If you had no debt, then it could lower your score slightly.
It may seem counterintuitive, but remember, the point of your score is to show how well you manage and repay your financial obligations. If you don’t have history or experience with that it doesn’t reflect well in your score, which looks less desirable to lenders.
Correct Any Mistakes
Fortunately, you are entitled to see your credit score and history, meaning that you can make sure that any inquiries are legitimate. Because identity theft is a major problem for many people, it’s imperative that you correct any mistakes as soon as you discover them.
Contact both the creditor and the credit score company, as both of them will have to amend their records. Unfortunately, this process can be a little complicated and take time to remedy but doing it will be much better for your credit history than letting incorrect information slide and follow you around by negatively impact your score.
Consolidate Your Debt
For some people, it can be difficult to pay off debt when they have to keep track of multiple different payments and due dates to different lenders. If that sounds like your situation, then it may be worth considering a form of debt consolidation.
Consolidation helps to put all of your debt under one roof with a lower monthly payment plan and potentially lower interest. However, as we’ll get into later, don’t close any open accounts once you do this, as that can hurt your score.
Talk to Your Creditors
Never underestimate the power of an honest phone call. If you’re struggling to make the necessary payments on your obligations, be sure to pick up the phone and discuss potential solutions with your creditors. Perhaps they can forgive some of the debt, or maybe they can help enroll you for an income-based repayment plan to get through a tight financial time. You never know your options unless you ask!
Overall, if the choice is between getting no money (i.e., bankruptcy) or getting less, companies will always choose the latter. Thus, if you make your case and find a compromise, you can get your feet back under you, meet your lower payments and also improve your credit score in the process.
Keep Accounts Open
If you’re able to consolidate your debt into a single loan, it may seem like a good idea to close any open accounts. However, remember credit utilization? If you close accounts, then the amount of credit you have available will shrink, which can lower your score. Instead, you’ll want to keep them open and avoid putting a balance on them.
Bottom Line: Start Taking Care of Your Credit
Overall, your credit score is essential for your financial health and can be directly linked to some of the possibilities and opportunities you may desire. If you haven’t taken care of it before, now is the perfect time to make changes. No matter how bad it is right now, there are always options available to get it higher. Don’t despair – create a plan and stick to it.
Opinions expressed in the article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.
