• Google Buzz

This article is the first in a three-part series on things you can do today to bring your score up as much as 200 points in 30 days. You see, creditors report your accounts to credit reporting agencies every 30 days like clockwork, so by completing a few simple steps now, you can bring your score up significantly by the end of next month. Each action takes no more then a few hours to accomplish and each of the three articles will lead you step-by-step through the “Credit Repair” process. This first article will give you the truth behind credit scoring and show you “7 Fixes” to do with your credit on an as-needed basis to bring your score to its maximum. The second article details with debt collectors and how to get them to settle for a fraction of what you owe. The third article shows you how to clean your credit report so that it is in top-notch shape (the most significant of the three articles). Begin implementing these tools immediately and you will soon have “excellent” credit.

To understand how your credit is rated, you have to know the credit formula and how to apply it to daily decisions. When you understand the credit formula, you will be able to manipulate your current credit whenever you want in order to maintain the best possible credit score. The pie chart below shows you exactly what percentages make up your credit report.

Credit Score Factors


PAYMENT HISTORY (35% OF YOUR SCORE)

30-Day Fix # 1: Bring all of your accounts current

Since 35% of your score is based on payment history, having late accounts currently on your report will hurt your score drastically. Although there is no exact number on how much this can bring your score up, it does calculate a larger part of your score in total, and I have read that being current can increase your score as much as 60 points instantly.

30-Day Fix # 2: Pay all of your accounts within 30 days of the due date.

Most people believe that paying bills late hurts your credit. The truth is…Paying your bills more then 30 days late hurts your credit. The difference is the 30-day grace period that comes with every credit account. If you pay within 30 days of the due date, it will not be reported as late to the credit agencies. This does not mean that you will not have to pay a late fee to your creditor, but it does mean that paying late will not hurt your score unless you are “really late.” Plus, it does not matter how much you pay as long as you pay the minimum required.

DEBT RATIO (30% of Your Score)

30-Day Fix # 3: Pay down your “Revolving Credit” balances

The largest part of a Credit Score is NOT based upon how much money you owe compared to your income. Income is not a factor when calculating your score. Instead, credit reporting agencies look at how much money a consumer owes divided by the amount of available credit, which is your Debt Ratio. The magic Debt Ratio is to owe 35% of what you can spend (or $35 owed for every $100). However, this 35% usually only calculates open “revolving credit accounts.” Home mortgages and car loans do not bring down your credit score; they improve it instead. It’s the accounts that you spend and pay off quickly that affect your score the most. So, by paying your credit card and credit line balances down to 35%, you will bring your score up drastically.

30-Day Fix # 4: Raise your credit limits

Again, Debt Ratio is how much you can owe divided by how much you can spend. Therefore, if you cannot pay down your balances, try going up instead. To be specific, ask your creditors to raise your limits. It will incur a credit inquiry, which can temporarily lower your score in 30 days, but it will also lower your debt ratio increasing your score even more.

CREDIT HISTORY (15% of Your Score)

30-day Fix # 5: Put your paid-off credit cards away

When you are not using a credit card, you should NEVER close the account. Without open credit accounts, creditors do not know how you pay your bills or if you are a viable risk. Since your payment history makes up 15% of your credit score, you want to keep these paid-off accounts open because they will continue to report you to the agencies, although they are now reporting you as “On-Time” and “excellent with credit.” So, having open accounts with zero balances HELPS your credit and shows that you have a credit history. If you have problems with credit, these unused cards will counteract the negatives and will help keep your score afloat. If you close them, the good credit history associated with those cards will soon disappear from your report and affect your score accordingly.

NEW CREDIT (10% of Your Score)

30-Day Fix # 6: Try not to apply for credit unless absolutely necessary.

Having a high credit score does NOT guarantee that Creditors will open accounts for you. Many times, they look at how many credit inquiries you have had within a three to six-month period and how many new accounts you opened recently and make their decision based solely on these two factors. To a creditor, too many inquiries and too many new accounts means you are trying to drive yourself into debt, and therefore, you will not pay them back. Plus, each time you do apply for credit, an inquiry goes on one of your reports and can temporarily lower your credit score as much as 5 points per inquiry. At the same time, credit inquiries fall off your reports after two years. So, by going as long as possible before applying for credit again, you are having inquiries fall off your report (making your score go up) and having fewer inquiries in a short period of time (making you a more viable risk).

TYPES OF CREDIT (10% of Your Score)

30-Day Fix # 7: Get a loan

Having too much of one kind of credit can hurt you because creditors want to know you can handle a wide variety of credit. On-time payments to cars, houses, and credit cards make you appear responsible and credit-savvy. If you don’t own one already, consider buying a house, condo or mobile home. A home loan will not only increase your net worth, but it gives you buying power later on. Creditors LOVE homeowners, and home loans for owner-occupied properties are fairly easy to acquire. However, if a home is not in the stars for you anytime soon, consider financing a car or business instead. A different kind of loan can help bring your score up.

Now, in case you have not figured it out, I am not suggesting that constantly monitoring your credit to make sure it is always “excellent” is the best solution for anyone. In actuality, credit can and should be used wisely to help you invest and grow your net worth. Borrowing against your credit can bring your score down, but if you know that you are about to make a large purchase, you can shift your money and funds back into place and bring your score up for any 30-day period before an application. By doing this…by manipulating the funds you have…you will always be able to qualify for more credit when you want too. Keep that in mind when you read the second article on dealing with collectors and also keep it in mind when applying for new credit.



 Related Content: