In our last post we discussed some things that you should avoid while repairing your credit. This month, we will be talking about some of the most important things that you SHOULD do to keep that score moving upward. Read on for more tips and advice to help you along the road to great credit!
Make Timely Payments
Kind of a no-brainer here, but an easy one to slip up on. Obviously, you always try to make payments on time, but it doesn’t always work out as planned. Sometimes this is for lack of funds to pay at the time the payment is due, but overwhelmingly, the problem is simply lack of a plan altogether. If you are consistently late in making payments, you are sending a signal to potential lenders that 1.) you are over-extended financial, 2.) you do have the ability to manage your assets (budget), or 3.) you are unwilling to pay consistently and on time. These are huge red flags which will make a lender reluctant to give you a loan. No, the rare late payment will not make it impossible to get a loan, however, ANY late payments should be avoided at all cost. Put together a solid monthly expense payment plan, with due dates or auto-pay dates and draw accounts (for automatic payments), and coordinate these dates with your projected paydays. If your largest issue lies with having funds available at the necessary time, set aside a portion of each paycheck in a separate draw account to be sure you will have enough to cover everything as it comes due. Creating a schedule is also a great way prevent forgotten payments, if that is the source of your problem.
Keep Credit Usage Low
Another important facet of credit that lenders look at, is your ratio of used credit to total available credit. Ideally this should be kept at about 30% usage or below. This shows a payment and use pattern, while still demonstrating your ability to utilize your available credit responsibly, instead of over-extending it. Charging a moderate amount each month and then paying it off completely- or at least to below 30% used- is the best way to keep your credit balance low, but still show lenders a responsible use pattern. As you can see in our sample credit profile above, even if you have no late payments, having your credit usage too high can have a HUGE impact on your score.
Monitor Your Credit Consistently
The absolute best way to improve your credit score, is simply to be aware of what’s going on with your credit- all the time. There are several free credit report websites, and any of them will provide you with a yearly, 3-agency credit report for free. This is a great start! However, credit changes can happen in a matter of days or weeks, so we recommend signing up for a credit monitoring subscription service, allowing you to check your credit any time- and ideally weekly or monthly. Doing this not only protects you from fraudulent charges or credit use going undetected, but will also give you a greater insight into your own financial habits, and educate you in what affects your credit both negatively AND positively. Most financial institutions and “free report” web sites offer credit monitoring either for free for account holders, or for a small monthly subscription fee (usually between $10-25). Some credit monitoring service will allow you to adjust credit variables to see what impact it will have on your score, answering questions such as “If I pay all my bills on time for the next 18 months, how much will my score FICO increase?” (see above example). Take the first step on the road to good credit today. We promise you won’t regret it!
Still have questions about credit or loan qualifications? Give us a call at 951-767-2400, and one of our helpful agents will be happy to assist you.