10 Steps to Improving your Credit Score

TheChristian
1. Open credit cards.
You cannot establish credit if you have none at all. In order to be in the game you have to sign up to play. There is no way for you to get an accurate or high assessment of your credit if you have none. Open a few credit cards. Be deliberate and systematic in the cards you choose. Try not to have multiple cards of the same type. Start out with a Visa card which is accepted almost every. If you are comfortable with more than one card then I suggest opening a Mastercard, Discover and if possible an America Express. It is best to decide if you plan to open one card or multiple cards before beginning this process. If you decide to open more than one card it is recommended that you open all of them at the same time to obtain optimal credit limits. If you apply and are accepted for a Visa and then days, weeks or months later open another credit card, the new card you are applying for will pick up the prior credit card limit on your credit report and may lower the limit you may have been able to get pior. However, if you apply for all the cards at once you will be assessed equally by all of the credit card companies before any of them have had the opportunity to add your new line to your credit report. With this said, try your best to stay away from overdosing on store credit cards. I suggest if you must then only apply for credit for the 1 or 2 stores that you frequent most, especially if having the card will provide any future savings. Department multipurpose store cards may serve you best such as a Sears.

2. Keep an open balance on your credit lines.
Despite popular belief you should always try to maintain a balance on your credit cards as you try to build your credit. Credit is not just based off of how much credit you have been extended but also how you manage it. It is not enough to open a credit card and have it sit there with a zero balance. This does not show credit agency how you “manage” debt. Keep a manageable balance on your cards. A good rule of thumb on what is considered manageable is to think about if you had to pay off the credit card all at once in the event you need to. You should be able to do so at any given time. One great way to manage this is provided in step number 3.

credit history
3. Don’t use cash.
Again, I am sure this sounds very different than anything you have been told but as you read on it will all make sense. One of the best ways to be sure to cover all of your credit is to not initially use your cash for purchases. See something you plan to purchase, be sure that you have the cash for this purchase and then charge it on your credit card. The cash equivalent that you have should stay or be placed in your checking/savings account. Once your credit card bill is received you should then take the cash and pay down your credit card. The key to this is to be able to keep the cash and make sure that it is available once the credit card payment is due.

4. Keep credit balance below the limit.
Being at or exceeding your credit limit shows creditors that you are unable to manage accounts and money. This becomes a red flag for creditors. To be sure that this does not affect you it is a good rule of thumb to at minimum be at 20% less than your credit limit. For example, if you have a credit card limit of $1000, you should always set an imaginary lower limit for yourself not to exceed $800. The lower your percentage the better.

5. Pay your credit lines monthly.
This is key. Monthly payments show your financial management skills. The nugget here is to also be sure to pay your credit lines monthly even if there is no payment stated as required. A perfect example of this is credit card where maybe you over paid last month. Once you have done this the minimum payment may now be switched to zero. This is a time that people normally proudly see a zero payment/billing request and do exactly that and pay nothing. I encourage you to fight the urge to not pay and wait for the next due date. If you pay monthly as scheduled even if not requested this will continue the steady score you have maintained.
"The cash equivalent that you have should stay or be placed in your checking/savings account"
6. Pay your credit lines on time.
Paying your credit card on time will save you several negative blemishes on your credit record. This instruction may not produce the biggest increase in your score however if you do not do this it will produce one of the biggest decrease to your credit score.

7. Drastically increase your score with a big credit purchase. If you are establishing your credit one thing that you should pay attention to is the kinds of credit that you possess. Big life purchases are huge contributors. Mortgage and vehicle loan payments are weighted much higher on the scale of credit based on importance. If you would like to see an instant boost in your score obtaining one of these assets will do just that. Equally so, they are also the top two assets that could drastically decrease your score if you are delinquent in payments.

8. Keep accounts out of collections/liens.
This seems obvious but it cannot go unsaid. Collections and lien accounts do the most damage to your credit score. These flat out tell credit agencies and other creditors you may be looking to borrow from that not only do you have difficulty with managing your finances but you blatantly may not ever plan to pay back your debt. I think this makes it clearer why you credit score would decrease.
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9. Plan credit inquiries.
Too many credit inquiries from creditors can decrease your credit rating. The concept behind this is that it is believed that if a creditor has pulled your credit history that it is assumed that you are trying to open multiple lines of credit which could reflect cash flow issues. Generally, 2 inquiries or less every 2 years will not negatively affect your credit score. With this said, if possible you should plan accordingly. Each inquiry will fall off of your record approximately after 24 months of the date that the request for your credit was made.

10. Watch your ratio.
A huge aspect of your overall score is your overall debt to equity ratio. What this means is that credit agencies look at how much credit you have been approved versus how much of that credit you have already utilized. The higher your balances are the higher your ratio which will decrease your score. So for example, if you have two credit cards both with a $500 credit limit, your total overall allowable debt is $1000. If you made purchases on both cards of $250 each, your total debt is $500. Your total debt ($500) is divided by your total allowable credit limit ($1000) which puts you at a ratio of 50% of used credit. Rule of thumb is in order to maintain a good credit score you should keep your overall ratio at 25% or less of used credit at any given time.
10 Steps to Improving your Credit Score
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