- 1 What is my credit score and what is it used for?
- 2 Request your credit reports
- 3 Identify delinquent accounts and resolve them
- 4 Improve your credit score by reporting paid utility and phone bills to Experian
- 5 How new lines of credit and hard inquiries affect your score
- 6 Will carrying a balance on a credit card improve my credit?
- 7 Is it better to cancel unused credit cards or keep them?
Hello, and welcome back. I’m Judy Copenbarger. Today we’re exploring the topic: how to improve credit score and how credit cards, those seemingly innocent little plastic things in your purse or wallet are intricately attached to a three-digit number. This three-digit number can make or break your financial future. Let’s take a closer look.
What is my credit score and what is it used for?
Your credit score is simply a number for potential lenders to measure how reliable you are when you borrow money.
We’ve discussed the reasons for needing credit in another article called “Pros & Cons of Credit Cards“. Give that a look if you’re still deciding whether you want a credit card, you will find your answer.
You will most likely need a loan for your new home, your next home, your dream home, or for that new car. Having access to preferred loans will make you flexible for life’s unpredictable events. You can put yourself in a great position to get that good loan for the goals that you have. And here’s the truth, the best, meaning lowest, interest rates on loans and the best credit cards go to people with the best credit score.
When you apply for a new credit card or a loan creditors will perform what’s called a hard inquiry. Basically they check your credit report to view your credit history along with your credit score to get a total picture of how reliably you pay back loans. The highest credit score possible is 850 and the average score for the United States in 2019 was 706. 670 is considered the low end of good credit scores.
So let’s take a closer look at steps that you can take and focus on what you can do to be among the best. Particularly, what you can do when you’re working on improving your credit score. One more thing. This process does take time. So exercise your patience. You will need to trust that you can do this. It’s doable. And I believe in you.
Request your credit reports
There are three major credit reporting agencies. And you’re entitled to one free report from each of these agencies every year. It’s important that you don’t focus too much on the three different scores and how they keep score, because the steps you can take to improve each score at the same.
Request all 3 at once to get a complete picture of your credit situation.
Identify delinquent accounts and resolve them
When you’ve missed a payment on a credit card or any line of credit and your creditor reports a missing payment after 60 days it lands on your credit report and it can stay there for up to 7 years. This is a delinquent account and this missed payment and will negatively affect your score.
It would be nice if you could remove it right?
Well, you can, using several possible strategies.
By the way, we’re assuming this is a late payment that was reported and is accurate. If a late payment is obviously a mistake you can submit a dispute with the reporting agency to have it removed. You would be in the right.
If you have not yet paid off this late payment you can call the company that issued you the credit and bargain a “pay for delete” option where your delinquency is removed in exchange for payment.
If you have paid off the account your only option is to send a letter requesting a “goodwill deletion” to the creditor or wait for 7 years for the account to be removed naturally.
Once you’ve taken action use a credit monitoring service to check if your score has improved without hard inquiries. You’ll find many credit repair agencies claiming to fix your credit for you but they won’t do anything you can’t do yourself so choosing that route is simply a matter of saving time and headache.
Take action as soon as possible because one late payment once reported can affect your score by up to 110 points.
Improve your credit score by reporting paid utility and phone bills to Experian
One of the newest, exciting, and under-utilized activities to implement to make a credit comeback is to report your utility and phone bills to Experian. Experian is one of the major credit reporting agencies. This will have a positive impact on your credit score. There are even services that integrate your apartment rent payments to help you establish and raise your credit score. Take every opportunity to build your credit slowly and keep working on your consistency. Pay on time no matter what.
How new lines of credit and hard inquiries affect your score
The last tip I have for you is this.
Do not open too many new lines of credit. These applications require a hard inquiry, which can negatively impact your score. Future lenders may infer from your score that you’re interested in borrowing more than you can afford to pay back. It may worry lenders that you’re taking on much more debt, even considering it, because you’re adding on additional responsibility.
This is sort of a game of reputation with banks and loan institutions, and you’re developing a relationship of reliability. So watch the number of accounts you open, or even attempt to open.
Before our time is over. Here are two myths worth dispelling. They’re not true!
Will carrying a balance on a credit card improve my credit?
Carrying a large balance on your credit cards is not necessary to build credit.
Here’s my advice: pay off your credit cards every month. However, if you carry a small balance for a month or two, you’re still okay. Paying the credit cards in full over two or three months will show that you can pay on time and could help build your score.
Is it better to cancel unused credit cards or keep them?
It is not better to close those credit cards you’re not actively using.
Having credit available that you do not use gives you a lower use percentage overall, and it can help improve your score. We call this the credit to debt ratio.
You are to be congratulated, for taking the time to invest in your future, and for learning more about your financial life. It’s really important to me that you have the knowledge you need to create the financial future you’re dreaming of. If you’ve learned from this article or were inspired to make changes for your future add a comment below. What additional questions do you have about your credit scores? Let’s discuss it!
I’ll see you next time! In the meantime, have an amazing day.
Judy Copenbarger is the Founder and President of Comprehensive Financial Services, based in Irvine, California.
She holds a Juris Doctor Degree, with a Taxation Emphasis, is FINRA Registered and maintains various Securities and Insurance Designations. Her professional expertise is in Estate Planning, Retirement and Education Planning.