A How-To Guide for Improving Your Credit Score Fast
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With that being said, then why do lenders, credit card companies, insurance companies, etc., etc., etc., seemingly force us to play their games? And if it isn’t a ‘game’, then why is it even called a ‘credit score’? Sadly, whether we chose to or not, we don’t have much of a choice but to play, at least if we plan on maintaining a somewhat comfortable standard of living.
If you’ve been struggling with bad credit over the years (or even months), here’s how to get back in the game and put a few more points on the score board — because, losing this game will make life difficult, to say the least, but just imagine what it would be like to win it?
So game on, my friends. Game on.
A Sense of Urgency: Just How Bad, Bad Credit Can Be
To get started, I feel I should mention a fairly important and nagging question: just how much damage could a bad credit score inflict? Hey, we often need to have a realistic perspective of these things, because a sense of urgency is a tried and true method for sparking the initiative.
Simply put, if your score is anywhere between 580 and 619, then you could be faced with some nasty, sobering consequences; hardships, of the sort, that look a little something like…
- Trouble getting a loan
- Higher interest rates and harder delinquency penalties
- Heavily decreased credit limits (we’ll come back to this later)
- Higher insurance premiums, especially on auto insurance
- Possible trouble getting hired by an employer, and even acquiring employment-necessary security clearances
…and perhaps the worst one of them all? It’s obvious that bad credit can sabotage your chances of approval on a home mortgage, but it will actually affect your eligibility to get into even an average-quality apartment. That is correct: bad credit can literally cost you a place to live, according to Brian Martucci of Money Crashers: “From the landlord’s perspective, the need for a pre-lease credit check is understandable, as applicants with lower credit scores are statistically less likely to make timely rent payments.”
Perhaps it may seem a bit unfair to assign scores to people that, for the most part, are just doing their best. However, from the perspective of companies that depend on a business model of lending money and property to dependable folks…
Admittedly, I can see the other side of that coin.
The Turning of a Page
Nevertheless, if you were to find yourself out of work with a bad credit score, then you could potentially also find yourself in a nasty catch-22. You need a job to fix your bad credit, but in order to fix your bad credit, you need a job, and a good one! Ouch. But this is why it is absolutely critical that we diagnose the causes behind bad credit, and then move decisively to fix them. To offer a little assistance, here are just a few of the most common causes of bad credit:
Missed payments – This is, by far, the most common reason for bad credit. Yet at the same time, it’s not the one that causes the most damage. Ultimately, a missed payment will count against your score, but that’s usually just a one-time penalty.
Settled credit card accounts – If you’ve settled with a partial balance with your credit card company, this will actually have lasting consequences on your report. Be aware of this, before attempting to negotiate a settlement, because it’s had a history of burning people’s credit scores.
Maxing out credit limits – This issue is the most detrimental to a credit score, because companies are constantly checking the difference between what you owe and what you can afford. Essentially, they’re checking “utilization” metrics, or how much of your credit limit you are utilizing. Credit.com defines utilization metrics as: “the amount of your revolving credit card limits that you are currently using. For example, if you have an open credit card with a $2,000 credit limit and a $1,000 balance then you are 50% “utilized” on that account because you’re using half of the credit limit.
Gunning for a 750 Score In 3 Phases
Now that we know what’s likely causing the credit score hang-ups, let’s get down to business with how to get back into the big league numbers. If you complete these 3 phases, then you’re going to be well on your way to a fast credit-score recovery.
#1 – Draft your game plan – It’s time to fire up the laptop, because you need to know how your credit report actually looks. Yes, we all want to aim for a score of 750, but if you think you’re at 680 when really you’re at 590, then it’s going to take you a good bit longer to meet that goal and, in the course of that time, more drastic and strategic actions may be required. In essence, a super low score may reek of identity theft, fraudulent charges, or mistake that require a credit report in order to know what you’re dealing with, allowing you to seek and destroy any and all credit-score parasites. If you receive your credit report and find that fraudulent charges and/or identity theft are at the root of your sublime score, report the charges immediately and seek legal counsel to help you wade the treacherous waters of recovery.
However, once that’s finished, it’s time to follow through on your new budget plan and start figuring out how you’ll make your monthly payments.
#2 – Bring them down to 30% – One of THE biggest pointers that credit checkers look for is how close are you to your credit limit, so your primary objective for this phase is to get all of your account balances down to (maximum) 30% of your limit. If companies can see credit potential that goes unused, then they’ll trust you with more credit.
Also, be sure to pay on your balances at least twice a month. There’s a very good strategic reason for this. According to Christine Digangi’s post on ABCNews.com: “If you want to use your credit card a lot but don’t want to hurt your credit utilization rate, consider making multiple account payments each billing cycle. You won’t know when the credit card company will report your balance to the credit reporting agencies, so paying quickly and often will keep your reported balance very low.” Simply put, sending the payment twice a month gives you a better chance of showing credit reporting agencies the lowest possible balance(s) on your credit card(s).
#3 – Schedule, Automate, Repeat – Once you have a system in place, I recommend using little helpers, like auto bill-pay and electronic checks-services that are provided by most banks. The point here is that you never want to accidentally miss a payment and cause another setback to your credit score. Hey, I get it: paying on time is not that hard to remember, but it is easy to forget (which is also another reason why paying twice is a good idea, because you cut your chances of forgetting in half).
Back in the Game
And that’s about all there is to it. In fact, it’s actually a fairly simple and easy process to get your credit back on track, but it does require personal honesty and the will to fix what’s wrong.
However, the interesting part is that, for those of us with somewhat good credit, it can actually take a lot longer to noticeably improve the score. But to those of us in the credit-gutter, you may only be a couple payments away from a massive increase. It’s much easier to improve bad credit, than it is to improve mediocre/good(ish) credit.
Hey, it’s all about incentive: because sometimes, you just need a pat on the back when you’re doing something right.