What are the basic necessities?
Shelter, food, water, clothing, and a decent credit score.
Okay that may be a slight exaggeration but not by much.
A bad credit score can have a very negative impact on your life and your finances.
Having a good credit score makes life much easier and offers a certain level of freedom.
Loan approvals at low interest rates, finding and landing great jobs, and even lower car insurance rates are all possible and much easier with a good credit.
What is a Top Tier Credit Score?
When it comes to a top tier credit score the bottom number starts at approximately 750.
A credit score of at least 700 indicates good money management practices and financial responsibility, and scores from about 700 to 750 are viewed as second tier.
Once a credit score drops under 700 then you will not necessarily be declined for credit but you will not normally be given the best rate possible either. A credit score of less than 650 is not good.
How to Start the Credit Improvement Process
Before you can fix and improve your credit score you need to know what you are starting with.
First you need to request a free copy of your credit report and credit score so that you know exactly where you stand. Only then you can take steps desribed below to improve these numbers.
Step 1: Look for Errors on your Credit Reports
If there are any errors on your credit reports then you need to contact the lender and dispute these errors.
Personal experience has shown that this can even lead to negative entries being completely removed from your credit reports.
Step 2: Sign up for Automatic Payments
Automatic payments can help you prevent late and missed payments that can really ding your credit score.
If there are accounts where automatic payment is not possible or ones where there is no minimum payment to be scheduled then use payment reminders with your calendar to give you a heads up before the payment is due.
Some financial institutions may also offer online banking that includes payment reminders.
Step 3: Lower your Level of Debt
Create a debt reduction plan so that you lower the amount of debt that you are carrying. This will make it easier for you to pay your bills on time, be financially responsible, and achieve a better credit score.
Step 4: Stop your Financial Bleeding
Avoid making any purchases unless you can pay for the purchase with cash. Continuing to charge for things you don’t absolutely need will just continue the same cycle and continue to hurt your score, and any financial recovery that you hope to achieve.
Avoid all credit card charges except in an actual emergency. Cut up all but one credit card, to be used only for an emergency, but don’t close out the accounts until you have read step #5.
Step 5: Keep the Oldest Credit Card Accounts that you have Open
When you close out older credit card accounts this can actually hurt your credit score, because it lowers the credit history overall average length that you have.
Keep your oldest accounts open but do not use these cards unless absolutely necessary to keep the account open or an emergency arises.
Step 6: Ask for Higher Limits
One of the factors used to calculate your credit score is your debt utilization, or the percentage of the balance that you have over the total limit that you have, and this is found in the amounts owed section of your credit report.
Ideally your debt utilization will be less than 20%, and should never be more than 40%.
One way to improve this ratio is to pay down any balances, but the same results can be achieved by raising your credit limit as well.
Do not view this as an opportunity to spend more though, only take this step if you can be responsible with the increase in credit limit if it is approved!
Step 7: Aim for a Good Mix of Credit Products
Having more than one type of debt that is managed responsibly will help boost your credit score. Aim for a mix of credit card, installment loans, and revolving credit accounts. This can include auto loans, mortgages, personal loans, and credit cards.
Step 8: If you have no Credit Start with a Single Card
Look for a credit card with low or no fees, and hopefully some rewards as well, and then use this card responsibly. Make purchases that you would pay cash for on the card and then pay off the balance as soon as the bill comes in.
Do not ever miss a payment or be late in paying, and always pay off the full balance each month. The best thing that you can do for your credit score is to make all payments on time, a late payment can cause havoc with yoru credit score and your finances.
When you follow the steps listed above you will find that you have a credit score in one of the top tiers before you know it, and you will be rewarded with lower rates and more opportunities for credit. Just remember to use it responsibly.