*Disclaimer: Information on this website are for educational purposes only, and should in no way be construed as financial advice. For financial advice, one should seek the services of a qualified Financial Professional. Information on this website is taken from Experian Credit Bureau website, unless otherwise stated.
The ability to obtain credit at low interest rates is an essential part of any debt management strategy. As a matter of fact, low-interest rate loans are a form of debt relief, for those who are seeking to get out of debt, as it’s easier to pay off loans at lower interest rates, than loans at higher interest rates. These low-interest, and sometimes no-interest loans aren’t however available to everyone, and are accessible only to people with good credit. For the person with bad credit, high interest-rate loans make it even more difficult for them to pay their loans or get out of debt; thus improving one’s credit score is essential for easier debt reduction, and for getting more favorable loans.
What is a Favorable Credit Score?
Based on information from the Experian website, a FICO score of 670 and above is considered good, while a good VantageScore credit score is 661 points and above. Anything below those thresholds are going to put you at a disadvantage when applying for loans, from higher interest rates to larger down payments, and even outright denial of credit. This is why one must manage their own credit activity to boost scores instead of lowering scores.
Seven Reasons Why Your Credit Score is Low
- Late Payment or non-payment of loans: Late and delinquent payments of your loans or bills can seriously impact your credit score, as your payment history is as much as 35% of your credit score. In addition, according to the Experian website, late or missed payments stay on your credit report for seven years, and include such things as write-offs/charge-offs, collections accounts, debt settlements, repossessions, foreclosures, and bankruptcy. Depending on the type of bankruptcy filed, bankruptcies can remain up to ten years on your credit report, and makes it almost impossible to qualify for any kind of loan.
- Your Credit Cards are Maxed Out: Having credit cards and loans all maxed out to their credit limit will reduce your credit score. It shows you are a risky borrower. Credit card balances which are 30% or more of your credit limit will lower your credit score. According to the Experian website, credit utilization rates and payment history makes up to 70% of your credit score, and are thus very important in calculating your credit score.
- You Cancelled Your Credit Cards: Banks don’t want you closing your credit card accounts. They want you to continue using them for a long time, and ‘reward’ you with an increase in credit scores for doing so.
- You Are Applying for Too Many Loans and Credit Cards Within a Short Time Span: Applying for loans or credit cards will result in a hard inquiry on your credit report, which lowers your credit score. Soft inquiries, where your credit is checked to pre-approve you for loans or credit cards, do NOT lower your credit score, and neither does checking your own credit. Credit scores are only lowered when you apply for credit.
- You Co-Signed On a Loan and Now the Loan is Delinquent: When you co-sign on a loan, you are held equally responsible for that loan, as the primary signer. If the loan payments are late, missed or the signer stops paying on the loan, your credit will be negatively impacted.
- You Added An Authorized User to Your Credit Card Account Who is Financially Irresponsible: As the primary card holder, you are fully responsible for making payments, whether you have an authorized user or not. If your authorized user max’s out your card, or make purchases you cannot afford to pay, you are held 100% responsible, and your credit will be negatively affected.
- You defaulted on Your Student Loans: Late payment and non-payment of student loans will bring down your credit score. Although delinquent student loans are cycled off your credit report after seven years, according to Wikipedia, the government still holds you liable for any balances owed, and may garnish your wages, tax refunds and social security checks, to get their money back. In addition, student loans cannot be discharged through bankruptcy.
Ten Ways to Boost Your Credit Score
- Remove Derogatory Marks: Derogatory marks on your credit report include write-offs/charge-offs, collections accounts, delinquent payments, bankruptcies, and debt settlements. If they are legitimate, they cannot be removed. If they are erroneous, they can be disputed and removed. Sometimes the only way to get them removed is to pay off the debts, and request that they be removed. You can do this yourself, or hire the services of a credit repair professional.
- Pay Your Bills On Time: Making payments on time will boost your credit score. Never miss a payment again, by signing up for automatic bill pay, automatic withdrawals, or scheduling payments on a calendar or through your bank.
- Report Your Utility Payments and Rent: If you make timely payments of your rent and utilities, those can be reported to credit bureaus to boost your credit score. Experian offers Experian Boost for utility bills, and it’s a free service. The website claims that using Experian boost can instantly increase your credit score.
- Pay down or Pay Off Your Credit Cards: Pay down your credit cards and keep the balances low on each card, below 30% usage. If you prefer not to carry a balance which attracts interest, then PAY OFF your credit card balances each month, before the due date. The last option is what I do to avoid paying interest, and still boost my credit score. Make sure however you are paying on time, or else you will incur late fees and higher interest charges.
- Transfer Credit Card Balances: Transfer balances from cards with high balances to cards with low balances to get each card below the 30% mark.
- Increase Your Credit Limit: Ask your credit card company to increase your credit limit, so that your balances are less than 30% of your credit limit.
- Limit Hard Inquiries: Opening a new credit card to transfer balances will drop your credit score, but your credit score will come back up, if you keep your payments current, and balances low. According to Experian, a hard inquiry will result in a 5-10 drop in your FICO score, so don’t do too many of them! Apply for credit as needed, and not because you want to have to have lots of credit. An exception would be when you are applying for a car loan or mortgage, and shopping around for the best loan deal. Most credit scoring models will give you a two-week window to shop around, and calculate all those inquiries for a car or home loan as ONE inquiry. Hard inquiries usually drop off your credit report in 1-2 months.
- Open a Secure Credit Card or Take Out a Credit Builder Loan: If you have poor or no credit, a secure credit card will help you to build your credit. With a secure credit card, you deposit your own money as collateral, and then a lender gives you a line of credit, based on the amount of money you have on deposit. Alternatively, you can take out a credit-builder loan. With the credit-builder loan, the LENDER deposits money in a savings account for you, and you make payments on the loan. Once the loan is paid off, the funds in the savings account are yours! This is money which could be used for an emergency fund! You can obtain a credit-builder loan by applying through credit unions, some banks, and even some online lenders.
- Rehabilitate Your Delinquent Student Loans: if you cannot work out a payment plan with your lender or consolidate your student loans, and your student loan ends up on collections, there are rehabilitation programs, which are federally mandated programs designed help federal student loan borrowers out of default. There are many non-profit credit counseling services online which can help students find the right program to get their student loans paid off.
- Pay Off Your Debts: While having multiple loans and credit cards which you are paying on time helps your credit score, keeping yourself in perpetual debt is something which hurts you in the long run, and only benefits the bank. Paying off your debts is something you do for yourself, because not only does paying off your debts help you to establish to good payment history which helps your credit score, but it also decreases your debt-to-income ratio, which is necessary for you to apply for a mortgage. Keeping your debts low means more money in your pocket and less money to the bank. More money in your pocket means more money with which to build wealth, instead of it all going out in expenses, fees, finance charges and interest. According to M2 Multimillionaire Mind Code, credit cards were designed to paid off over a period of 22 years, with you paying x10 more than the original principal; so guess who is getting the better deal there?
This Five-Step Debt Relief Program Will Help You to Pay off Your Debts, While Increasing Your Cash Flow
This five-step, Biblically-based, spiritual program teaches you how to get out of debt, while increasing your cash flow, resulting in more money in your pocket, while improving your credit, by tapping into Divine assistance for help. You can either struggle the traditional way to get out of debt, or obtain Divine assistance by tapping into the spiritual laws of debt relief, and obtain the same results. Divine assistance was crucial for me to get out of debt, and continues to be crucial for staying out of debt, and for peace of mind. You can read my story here. In addition, this program increased my inflows, and credit score. With a credit score of 806, I’m considered to have not just good credit, but excellent credit. This program will teach you how to develop healthy financial habits, and is especially helpful to those who may be struggling to stay financially disciplined. It teaches you how to be a better money manager or good steward of your resources. The five-step program is as follows:
Step one: Assess Your Financial Status
Step Two: Eliminate Wasteful Spending
Step Three: Increase your Inflows
Step Four: Snowball Your Debts
Step Five: Get Relief For Your Debts
The full program is explained here. This program is usually completed in five weeks, but you can take as long as you want, going at your own pace. Coaching for the first step in the program is FREE, and ALL who sign up to be coached will also be invited to join an online support group on Facebook. Those who wish to continue, and pay for the entire program, will also get a FREE e-copy of my book, Out of Financial Hell: A Journey into Divine Abundance. Today could be your first day of ending the struggle with finances. To get started, fill out the contact form below, and type in the words DEBT FREE in the message box. I look forward to hearing from you soon.
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