There are only five ways to increase your credit score. It may surprise you, but factors like your income, length of employment, home ownership vs renting status, and education are all completely ignored when it comes to calculating your credit score.
Many people have been negatively affected by the downturn in the economy. The side effects range from occationally missed debt payments to losing one’s house to foreclosure. These examples encompass both sides of the spectrum of debt avoidance that will adversely affect your credit. The good news is that so many people have been affected by these “credit blemishes” that creditors are now forced to be a little more lenient and understanding if they hope to have a profitable book of borrowers in the future. So how do you get back on track and rebuild your credit score?
- Pay down your outstanding debt. Most of us have seen that those who are in debt typically need their credit much more than those who are debt free, however, the more you need credit the harder it is to get. Why is this? Lenders are in search of borrowers who don’t need the credit, but when they use it they pay it back quickly. The best way to become one of these attractive borrowers is to pay down the debt you owe. Some outstanding debt looks worse than others. I recommended paying down debt in the following order (pay off completely, then move on to the next):
Credit Card > School Debt > Medical > Car Payment > Mortgage
- Establish a clean credit history. The largest part of your credit score is your ability to pay the debt you’ve accumulated. In the eye of a lender, a consistent payor is also an attractive potential borrower. Setting calendar reminders or automatic bill pay are great tips to ensuring that your credit history is never in jeopardy. Chances are, developing a habit for paying bills is one of the 15 Financial Life Lessons Your Parents Forgot to Teach You.
- Avoid frequent sources of new debt. Looking to save 15% at the Gap or Home Depot by opening their in-store credit card? While it might save you a few bucks, it’ll also drop your credit score several points. Lenders view volatile borrowers who are constantly opening and closing sources of credit as less attractive than those who have well established sources. This brings us to our next point of…