There are four golden rules to get a better credit score. These rules are based on the factors that the credit reporting companies use to calculate credit scores based on the FICO scoring system.
#1: Pay on time every month
Making late payments is the easiest way to damage your credit score. When money gets tight, the natural choice is to pay the necessities first – like food, rent, and child care.
But late credit card and loan payments damage your credit significantly, especially if the delinquency goes on for 60 or 90 days. It is best to take control of the situation and contact your creditors to try to arrange a new payment plan or see if they have any financial hardship programs. It may be hard to swallow your pride and ask for help, but protecting your credit score is worth it.
If you find yourself in an ongoing budget pinch, you cannot ignore your debts. To make ends meet you have two real choices: spend less or earn more.
Spending less means taking a long, hard look at your spending and cutting out all the extra fat that you can. You can earn more by taking in a part time job or starting a side hustle (like dog walking, house cleaning, lawn care, etc.).
#2: Pay your balances down
The more maxed out your lines of credit are, the worse your credit score will be. For maximum effect and a better credit score, we recommend you keep your balances below 7% of the credit limit.
Paying down large balances can seem impossible, but if you have a good plan, it is much easier. It will take time, but the end result is a much more peaceful and confident life without a mountain of debt over your head.
Follow this Debt Snowball Plan to organize your debts and create a payment schedule you can afford.
(Bonus tip: minimum payments are never enough! Read this to find out why minimum payments are keeping you a slave to your debt forever!)
I’m ready to restore my credit! Schedule my free consultation today.
#3: Keep old accounts in good standing open and active
The length of your credit history makes up about 1/3 of your overall credit score. When you close old accounts, your credit score takes a double hit. First, you decrease the average age of your credit file by removing the old account. Second, since that account probably had a zero balance, you now look more “maxed out” because your total debt is averaged over fewer accounts. (This is called your credit utilization ratio and you can read more about it here.)
So, keep old accounts in good standing open and active to achieve a better credit score. You may have to use the account once every few months to keep it open. If an account stays inactive for too long, the creditor may close it administratively. And it that happens, you are very unlikely to be able to reopen it. That big chuck of your credit history will be gone for good.
#4: Demonstrate responsibility in multiple credit areas
Credit cards are only one part of a healthy credit score. These kind of accounts, called revolving credit, allow you to carry a balance from month to month. Your total balance goes up and down depending on your spending and payment activity.
The other important type of credit is installment loans, like car loans, mortgages, and student loans. These types of accounts start out with a high balance that decreases month by month as you make your payments. When the account is new and the balance is very high, these accounts may cause a slight dip in your credit score. But after you establish a pattern of on time payments, this will improve. Once the balance is zero, however, this account will no longer affect your credit score.
Having both revolving accounts and installment loans on your credit report is an important part of a better credit score. If the rest of your credit report is in good shape and the only thing you are missing is an installment account, consider getting a small auto loan or personal loan – if you are 100% sure you can afford the payments. The last thing you want to do is overextend yourself!
What if you need more help?
If you have collections, past due accounts, and other negative remarks on your credit report, you might want to consider professional credit restoration.
The NCES credit restoration program can help you challenge old and outdated accounts, actions by aggressive debt collectors, and numerous kinds of errors that are commonly found on credit reports. Schedule your free consultation today!
If you have any questions, please give us a call at 770-952-5168 or contact us online.
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Other articles that may interest you:
Is A Perfect Credit Score Worth The Effort?
Keeping the Wolves at Bay – Safely Communicating With Debt Collectors
Getting The Most Out Of NCES Credit Restoration
This information is intended for informational and educational purposes only and not as legal advice. If you have concerns about your credit report, harassment, identity theft, illegal collections activity, garnishments, or property liens, you should consult an attorney who specializes in consumer rights and defense.