Though websites and ads may promise to magically boost your credit score overnight, you’ll get better results by consistently following best practices.
The best way to boost your credit score? There’s no quick fix, but understanding how your actions boost your score can lead to reliable improvement. Follow these simple tips, and watch your credit score increase!
Tip #1 – Pay your parking tickets!
You may not immediately think that parking tickets would impact your credit, but unpaid citations can be sent to collections. Collections, no matter how small, can crush your credit score.
Tip #2 – Do NOT pay collections and expect your credit score to go higher
The credit scoring model only looks at two things on a collection: the most recent activity date and the status code. It doesn’t look at the balance amount. For this reason, a collection for $50 and a collection for $5,000 have the same negative impact on your score. When you send payment to a collection, the activity date is updated, which increases the negative impact. Paying off a collection can only hurt you because it updates the activity date and the $0 balance doesn’t help you.
Tip #3 – Avoid late credit card payments at ALL costs
Though you might not guess it, a 90-day late payment on a credit card actually has the same negative impact on your credit score as filing for bankruptcy!
Tip #4 – Get a secured credit card
A secured card requires a security deposit, then awards credit in that exact amount. Since your credit is backed by your deposit, you’re a low credit risk and an asset to the lender. As you pay your debt on time, you’ll see your credit score increase! Just make sure to choose a card that reports to all 3 credit bureaus so you’ll receive the improvement you’re looking for.
Tip #5 – Choose a short sale rather than a foreclosure
If you’re unable to pay your mortgage, make sure you move forward with a short sale rather than allowing your home to go into foreclosure. What’s the difference? A foreclosure is essentially “flipping the bird” at your lender; you’re saying, “It’s your house now; you deal with it.” Homes can remain in foreclosure for months, waiting for the bank to get around to processing them. On the other hand, a short sale (selling the house for less than it’s worth) communicates to your lender: “I can’t pay, but I want to help you get as much money back as possible.” You’ll also maintain the control to move the process along as quickly as possible. The result? Your credit score will suffer less negative impact, and you’ll be able to purchase a new home more quickly down the road.
Tip #6 – Avoid loan modifications
A loan modification allows you to lower your mortgage payment and makes your payments appear current. You may have heard good feedback from people who modified their loan and lowered their mortgage payments, but this is not the norm. Once you apply for a loan modification, the bank will often move forward with the approval process at a snail’s pace, while telling you to miss payments or make a lower payment in the meantime. Once they’ve decided that they’ll approve you, you’ll be forced to take whatever they present.
Tip #7 – Avoid co-signers
There is absolutely no benefit in obtaining a co-signer for a car, mortgage or student loan unless you have absolutely no other option. All it does is give the bank another person to chase down in the event you can’t pay. It doesn’t help you one bit, but could come back to haunt you.
Tip #8 – Pay your credit card bills before the statement ending date
Most people think the key to building a good credit score is to get a credit card, use it during the month, then pay it off when the bill comes in. Unfortunately, this line of thinking is the result of a bit of brainwashing. In reality, by the time you get the bill, the credit card company has already reported it to the credit bureaus. However, if you pay the account off each month before the statement end date, your credit score won’t be impacted. Pay the balance prior to that statement end date in order to get the credit you deserve.
Let InCreditable Advisors help you make smarter credit decisions when it comes to understanding how credit scores work, how to boost your credit, and how to protect your scores. Call us today at 317.202.1297 and schedule a consultation.