The way I see it, credit scores are a lot like the classic Clint Eastwood (Blondie) line from the Spaghetti Western, The Good, the Bad and the Ugly:
“I’ll sleep better knowing my worst enemy is by my side to protect me.”
A credit score can be your worst enemy or your best protector in a tough economy, but regardless, it will always be by your side. Learning how to manage your credit behavior to get your highest possible credit score is your best protection in hard financial times.
When was the last time you reviewed an up-to-date copy of your credit report? If it wasn’t in the last 30 days, your worst financial enemy could be sleeping right by your side.
Get your free credit report now. Then read the rest to map out your plan for improvement.
Let’s Start with the Good
Often times, good credit is more good luck than credit smarts, and luck can change on a dime. In fact, although many good credit folks may stop actively learning about smart credit habits, they could be in the biggest need of credit protection.
- Good credit scores are a prime target for identity theft. Why would a thief swipe a bad credit profile?
- One bad decision could turn a good credit score bad, if you’re not in the know about what gives you good credit.
Believe it or not, you might also be the group with the biggest opportunity to move your credit score into the “excellent” credit category.
1. Everything starts with a credit report. You can’t fix a blemish you don’t know about. There are a couple of options for getting a look at your credit report.
First, is the free annual credit report you are entitled to in accordance with the Fair and Accurate Credit Transaction (FACT) Act. However, if you’re serious about improving and monitoring your credit for improvement you might want to sign up for a regular monthly credit report and score, like the one Quizzle offers.
2. Credit utilization is often a silent killer. Even the best credit scores can be lowered by credit lines (i.e. credit cards and home equity lines of credit) that exceed 50 percent credit utilization (how much credit you use, or balances, compared to how much credit is available to you, or limits).
Many times, your overall use of credit can be low, but a particular credit line is over 50 percent used up and quietly dragging down your credit score. Reducing the use of all your credit lines to less than 50 percent can often significantly raise your credit score.
3. Avoid new credit. If you don’t need new credit, don’t sign-up for it. All those credit card offers stuffing your mailbox and popping up online can be dangerous siren songs.
Every new, unseasoned credit line adds potential risk to your credit report – lowering your score, at least temporarily. This is also why mortgage lenders always caution you against getting new credit or making big credit purchases while qualifying for a new home loan or refinancing a mortgage.
4. Leave accounts open. For the same reason that opening new credit accounts can ding your credit, closing old, seasoned ones can too. In addition, if you close an account that still has a balance to be paid, the creditor may stop reporting the available credit. This can give you a double whammy: immediately raising your credit utilization to 100 percent and appearing to other creditors as a repayment program on a canceled credit line.
Now the Bad
Bad credit isn’t always all your fault and many people in the “bad credit” category have some quick credit improvement wins to be had. Let’s look at a few that might just be within reach:
5. Look for and dispute reporting errors. Credit bureaus make mistakes and a couple of negative reporting errors can really crush a credit score. That’s why the federal government passed the FACT Act, giving you the right to check your credit reports once a year for free. But, this also means it is up to you to find and correct the mistakes.
[Free Resource: Check your free credit report and score]If you’re serious about improving your credit score, you have to watch your credit report closely. Creditors report monthly to the credit bureaus (Experian, Transunion and Equifax) providing lots of opportunities for error. That’s why some financial and credit experts recommend you update and review your credit report monthly.
If you have a poor credit score, closely review every credit line in your credit report for accuracy, and dispute any and all errors. This can be your easiest and fastest credit improvement.
6. Inventory your bills. Just like updating and reviewing your credit report, you need to get a 100 percent inventory of all your bills to identify problem areas. This inventory of bills and creditors is a great roadmap to credit repair.
7. Pay everything on time. Now that you have a complete inventory of your bills, you need to make a budget plan that gets you to a point where you can pay all your creditors and pay them on time. Certainly this is going to mean some sacrifices and belt-tightening. However, this is the number one factor to getting to a good credit score – make it a priority.
And Even Hope for the Ugly
Your credit report can become a mess in a hurry. A couple of months without a job, a big pay cut, or stretching the budget with credit cards can send you right to the ugly range of the credit spectrum. Don’t lose hope. Credit scores can and do recover. You just have to take things one step at a time. You will be amazed by the rebound.
8. Put your spending on a diet. This is always the first step. Whether your financial woes are of your own making or the result of job/income loss, you have to get spending down. This means looking for all the little ways to save money – cancel the cable, cut-out the trips to Wal-Mart, brew your morning coffee at home, and give Hamburger Helper another try. This will give you the immediate extra cash to pay your bills on time.
9. Make contact with your creditors. If you’re already behind on one or more bills, call the creditor(s) directly. This is probably the last thing you want to do, but it’s the most direct way to recovery. Creditors are often very willing to work with people who are motivated to repay their debts or at least what they can afford.
Many times creditors will offer reasonable repayment plans, grace periods and even balance reductions based on your financial hardship. However, these options are only available to those with the courage to call for help.
10. Start today with one small step. All of this may be overwhelming. However, broken down into small steps, improving your credit is possible and the results can be significant.
Remember the basics: Get a copy of your credit report, update it monthly and track your progress. For a little extra assistance, enlist the help of credit tools and guidance to keep you on track to a healthier credit report and score.
Lifting your credit score to its highest potential is simply an exercise in watching your credit report and taking action. What are you doing to raise your credit score?