Earlier this week, I tweeted the following:
Surprisingly, many of my Twitter friends chimed in to share their opinion on which is a smarter option: buying or leasing a car.
One Twitter follower asked me if I financed or paid cash for my vehicle. Completely unembarrassed by hypocrisy, I replied,
Clearly my position on borrowing money has shifted a bit. Two years ago, I would’ve ended my answer with “before I knew better.”
No qualifying statements.
Y’all know me. Debt freedom is worth far more than a depreciating asset I can’t afford. Heck, I struggle with taking out a mortgage to buy a modest home.
But that’s just me.
If you insist on taking out a loan, for any reason, you’ll need excellent credit to secure the best interest rates.
I’d rather you cut yourself with the sterile edge of a sheet of paper than the rusty blade of a machete. So, I threw together a mini crash course on how to increase your credit score.
Obtain a copy of your Equifax, Experian, and TransUnion credit reports.
Although you can run a free credit check through AnnualCreditReport.com once a year for each major credit reporting agency, you won’t receive a score. With that said, the service won’t cost you a dime.
Inspect each credit report for incorrect information.
Is your student loan categorized as a revolving account? Is the real age of your home equity line of credit older than what’s shown on your credit report? Is a credit card limit higher than what’s recorded?
Do you see accounts that don’t belong to you? Late payments that were paid on time? Applications for credit you didn’t make?
My apologies for slapping you with a litany of questions, but this stuff matters.
Dispute inaccurate information with the applicable credit bureau and the knucklehead who provided it, immediately.
Decrease your credit utilization ratio below 10%
Simply put, your credit utilization ratio is how much credit you’re using compared to your total available credit.
There’s a rumor floating around that cancelling credit cards improves your credit score. Balderdash! It ain’t true!
Close a revolving line of credit and you risk harming your credit score in two ways:
1) You shorten the average age of your credit accounts.
2) You increase your credit utilization ratio.
Leave zero balance revolving accounts open, and pay down the outstanding amount on the others.
Many creditors report card balances as of the statement date. Meaning, even if you pay off your balance after the statement date and before the due date, your utilization ratio may seem unreasonably high.
So, submit your payment before the statement date.
If you can’t pay your revolving accounts in full each month, then why are you going deeper into debt, huh?! Stop this foolishness now before you render yourself insolvent.
You could also request a credit limit increase on your existing accounts. Ask the representative at your credit issuer whether a “hard pull” or “hard inquiry” is required to get a higher limit.
Keep your credit shopping period short, say, 14 days or less.
For instance, many scoring models count applications for new credit within a small window as one hard inquiry. In case you’re wondering why this matters, creditors get a bit squeamish when your behavior suggests you desperately need a loan.
If you look like you’re a prudent consumer hunting for the best interest rate, the damage to your credit score is minimal.
What tricks have you used to quickly boost your credit score?