How to Improve Your Credit Score
(Guest post by the guys at CreditScore.net)
People tend to learn the hard way that bad credit doesn’t just go away. It can take years to rebuild a destroyed credit score and fix financial woes. Often people experiencing financial difficulty find themselves in the dire straits, especially due to unemployment in the recent economic downturn. Overwhelmed by surmounting bills, it only takes few delinquent payments to ruin credit. There are a few things you can do to get your credit under control:
This sounds simple, but it’s important to pay down debt on your credit cards. Only use them when it’s absolutely necessary. Often people get themselves in trouble by having too many credit cards while only paying the minimum payment. Lower or eliminate all the debt on your credit cards, and keep only one or two cards for the future – picks the ones you’ve had the longest. This can help towards improving your credit score, especially if the balance is below 30% of the credit limit on each card.
Also, don’t close a credit card until it is paid off. Closing the card beforehand will not help improve your score. It’s better to pay down the balance than to close an account before it’s been paid off. Also, don’t open any new lines of credit, especially if your other cards are maxed or the debt is high. If you have a decent history with an older line of credit this helps your credit record and in turn will positively affect your score.
Responsibility is key to establishing a good history of credit. It’s easy to find your way into financial straits by using a credit card when funds are low, however, you must use restraint. Plan a budget, and live within your means. If you follow this plan there will be no unwelcome surprises when you apply for a loan, house or rental property. Bad credit and bankruptcy can follow you for a long time and make your long-term plans impossibilities.
How quickly does your credit score improve? As an example, say you pay off a large portion of your debt (or all of it)…how long would it take your score to shoot back up? Days? Weeks? Months? Years?
@Ryan, it really differs based on the reason a loan/CC was closed and how much debt was paid off at the time. With us paying off our 2nd mortgage 9 years early, you would think it would bump up our score, but it was less than $5k left, so it wasn’t a huge chunk of change compared to the original loan amount and thus wouldn’t give much of a bump.
However, when cancelling credit cards, which I’m about to do en masse, it will take 3 or more months to recover depending on the age of the cards, if there was a balance left on the card, the reason for cancelling and how much of your total available credit is lost. For example, if I have 100k in available credit and I’m cancelling 3 cards worth about $50k, it’s a bit hit, but I also don’t carry a balance on any card, so my credit usage is still very low in comparison. I just have to plan not to apply for new credit for about 3 more months now.
Once you’ve paid off those CCs, then call & have your credit line reduced if it’s humongous, on the cards you plan to keep. Figure out how much you might realistically *need* to be able to charge & ask them to lower it to that.
Some entities will look askance if you have, say, a $20,000 credit limit on a card, no matter how much or how little you owe – since you could theoretically go out & spend up to that limit at any moment. When figuring out whether you can afford that car loan, they can factor in the minimum payment you might be liable for if you do hit your limit.
dude loving your blog, quick question, if you would be so kind. I have always found balance transferring my card useful, but am i not doing my credit rating any justice moving cards so often? As you say in your post about keeping the credit cards you’ve had the longest?