Pacific United Planning, Inc. | Improve your credit score
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17 Aug Improve your credit score

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Improve Your Credit Score

 

True or false: Your income influences your credit score.

I know what some of you are thinking. A lender looks at your income to see how much you can borrow, but that’s another story. What about that three-digit score?

False. Your income doesn’t influence your credit score.

If you answered differently, you’re not alone. In fact, many Americans don’t quite understand what factors determine their credit score and how to improve it.

What most of us do know is that a high credit score helps us get lower interest rates, avoid deposits on utilities and cell phones, and obtain faster approval on new loans and rentals. All of us can understand those benefits, so let’s explore how to enjoy them, shall we?

Important Steps to Raise Your Credit Score

1.  Reduce Credit Card Debt
Do you have a high credit limit? That’s great, but not as great if your credit card balance is also high. Combine all your credit card balances and compare them to your combined credit limit. It should be at 30% or less.

Are your balances high right now? That’s okay! Work on getting them down and your credit score can quickly reflect those efforts.

2.  Pay Bills on Time

calculator next to invoices

This is a big factor. We’re not just talking about your credit card payments, but all your bills. While not all of them are reflected on your credit report, they will be if they’re not paid on time. That department store card that you only use at Christmas? The fine from your local library? Don’t let those seemingly insignificant charges get the best of you. All it takes is one late payment to drop your score.

3.  Keep Old Credit Cards Open
You don’t use that credit card anymore, so you may think it’s best to close it. Think again! If you close a credit card, over time it will be removed from your credit report, which will reduce your credit age. (Being old in credit years is a good thing!) Lenders want to see experience with managing credit, and the older your credit age is, the more experienced you are.

Also keep in mind that if you close a credit card, you’ll reduce your available credit. Remember that 30% figure I gave in tip #1? If you close a credit card with a credit of $3,000, you’re reducing your credit limit by $3,000. Keep it open and you’ll have more wiggle room with your credit card balances.

This same principle applies to old debt. Think about that car or house you finally paid off. Just because you paid it off doesn’t mean you want it off your credit report.

4.  Keep those Credit Inquiries to a Minimum
This doesn’t mean your checking your credit will hurt your score. That’s considered a “soft inquiry.” A “hard inquiry” is made by a potential lender because you’re applying for credit. A couple of them won’t hurt you, but more than that in a short period of time could cost you points.

The good news? Inquiries are erased from your credit report after 24 months.

5.  Keep an Eye on your Credit Report

working at a desk with a laptop

I could probably write a whole other blog about identity theft, but most of us know how rampant it is. What’s even scarier is that you may be a victim and not even know it. And what’s worse, you may not even experience the consequences until years later when a collections agency starts calling you for something you know you never opened.

So how do I check my credit?

You can request a free copy of your credit report from each of three major credit reporting agencies – Equifax®, Experian®, and TransUnion® – once each year at AnnualCreditReport.com or call toll-free 1-877-322-8228. You’re also entitled to see your credit report within 60 days of being denied credit, or if you’re on welfare, unemployed, or your report is inaccurate. It’s smart to request a credit report from each of the three credit reporting agencies and to review them carefully, as each one may contain inconsistent information or inaccuracies. If you spot an error, request a dispute form from the agency within 30 days of receiving your report.

If you have a credit card, you most likely have access to your credit score for free.

Even if you’re not looking to open a line of credit right now, you can take steps to ensure you’re set for when that day comes. At the very least, protect yourself against identity theft by staying up to date. It’s free and relatively easy and the truth is, you can’t afford not to do it.

 

 

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David Yu, CFP®
dyu@pacunited.com

David Yu is a CERTIFIED FINANCIAL PLANNER™ practitioner with over 10 years of industry experience helping people make smart, lasting financial decisions. He believes in developing strong, lasting relationships based on mutual trust and honesty. He also provides helpful resources via his blog, THE INQUISITIVE MIND. In his spare time, he enjoys traveling, Brazilian Jiu-Jitsu, tennis, and USC football.