5 Keys To Unlocking A Better Credit Score

AAA

A credit score is the key to understanding how creditworthiness is evaluated by lending institutions, as a good credit score can unlock the vault to help obtain financing.

Your payment history, loans outstanding and a general indebtedness are statistically evaluated by the credit bureaus. The big three of the industry are: Equifax, TransUnion and Experian. Based upon a compilation of that data, your profile is assigned a number between 300 and 850, with 300 being the least credit worthy and 850 being the most credit worthy.

Tip No.1 - Pay More Than the Minimum

If possible, always make payments over and above the minimum interest payment that is due. Credit bureaus not only look at the amount of debt an individual has outstanding, but also the length of time it takes to pay off the debt.

Unfortunately, there's no calculation that can be used to measure exactly how much this will boost your score. There are a myriad of factors that go into computing a credit score, but accelerating payments and satisfying debts on a timely basis is recommended as a means of repairing credit by lending institutions and well-known credit counseling agencies such Credit Guard of America.

Tip No.2 - Work Out a Plan

Most people don't realize that if they are behind on their debt payments and are going through some trying times, their lenders will often consider negotiating a revised payment plan or possibly forgiving a portion of the debt. For lenders, negotiating is cheaper than either hiring a collection agency or risking that the individual might have their debts cleared in a bankruptcy proceeding.

If you need a reprieve, approach the lender and ask for more time to make payments. You can also present a revised payment structure. If you can develop a plan that works for you and makes sense for the lender, there is a good chance they will accept it. If and when a deal is struck to forgive a portion of your debt, be sure that the major credit bureaus are aware of it and that they make the appropriate notations on your credit report. Less debt and timely payments equal a higher credit score.

Tip No.3 - Switch from Credit to Debit Cards

Credit card debt is no friend to your credit score. One of the best ways to avoid credit card debt is to pay the debt right away, through the use of a debit card.

Debit is different from credit. With a debit card, you deposit money into an account and then use the card to charge against the money. There is no credit bill to rack up, and you can only spend what you actually have.

It is important to note that credit reports don't typically factor debit card payments into the credit score equation. But by disciplining yourself and using a debit card to settle debts on the spot, (rather than racking up huge credit card balances) you will, by extension, have a better credit score.

Tip No.4 - Cut Up Those Store Cards

From a credit bureau's perspective, the logic behind this is that you could theoretically tap all of these credit sources to the max at one time and rack up a huge amount of debt. In other words, credit agencies and lenders are worried about your potential for taking on high interest debt, as well as the likelihood that you probably maintain small balances on each of those cards. If they don't have an outstanding balance the easiest solution is to simply call and cancel the cards.

The goal should be to reduce your card count to one or two credit cards. It will make reviewing monthly statements and paying your bills much easier. It will provide discipline as your overall credit limit will be lower, and finally it will keep your wallet from exploding in your pocket, which can be very messy.

Tip No.5 - Add Comments to Your Credit Report

Few people realize this, but credit reports typically have a space for you to provide your comments at the bottom. This section is another area of recourse that can be used. It lets you comment on why a particular debt hasn't been paid or to point out any factual errors. To do this, the individual must contact the credit bureau directly and again may have to provide some documentation to support the claims.

To be clear, adding comments to the credit report won't necessarily boost your credit score. However, some lenders may take your comments into account when deciding whether to grant you a loan. This little-known space can be invaluable if you are fighting an incorrect rating.

Bottom Line

A low credit score is not the end of your financial world. Discipline and responsibility can help rebuild even the lowliest of scores. Paying more than the minimum, reducing the number of cards in you wallet, negotiating a payment plan and taking advantage of the comments section on your credit report can all help boost your score and improve your odds of success the next time you need a loan.
Related Articles
  1. Investing

    What Is the Lowest Credit Score?

    Learn about the different types of credit scores available to borrowers, and find out about the lowest scores under each one of those credit scores.
  2. Investing

    What Do Credit Score Ranges Mean?

    Take a closer look at what credit scores in each range mean for your financial future.
  3. Personal Finance

    9 Ways To Improve Your Credit Score Today

    When it comes to finances, there are a number of goals that you might have established, such as saving money, paying down debt or new investments.
  4. Investing

    Your Credit Score: More Important Than You Know

    Credit scores affect key aspects of your personal and professional life. Knowing your score and managing your credit input can make a big difference.
  5. Investing

    The Importance Of Your Credit Rating

    A great starting point for learning what a credit score is, how it is calculated and why it is so important.
  6. Personal Finance

    What Credit Score Should You Have?

    We break down credit scores by age to see what your score should be and how it will affect your major purchases.
  7. Investing

    Best Ways to Get Free Credit Scores in 2016

    You've probably seen spammy ads offering the opportunity to check your credit score for "free." Well, not all credit score services are created equal!
  8. Personal Finance

    Is My Credit Score Good Enough for a Mortgage?

    Your score is critical in determining not only whether you'll secure a loan for a home, but also what interest rate you will be offered.
  9. Managing Wealth

    How to Raise Your Credit Score Quickly

    Here are the best tips for raising your credit score quickly.
  10. Markets

    Credit And Debt Management: Credit Reports And Scores

    by Cathy ParetoIt's funny how things come to define us as people. Sadly, our credit score is one of those things. A credit score can either be a scarlet letter or one-way pass to easy money; ...
Trading Center