The Best Ways to Improve Credit – Increase Your Credit Know-How

The Best Ways to Improve Credit

The Best Ways to Improve Credit

The Best Ways to Improve Credit

So what are the best ways to improve credit and why should consumers strive to make it better? Not long ago, the only interested parties evaluating your credit were lenders.  As a result, these lenders were the lone authority who decided if you were responsible enough to take on new credit.

woman loan officer

For better or worse, more companies, insurers and employers are focused on financial data in today’s credit environment.  Now days, companies have access to individual  credit information made available through the major credit reporting agencies. This wider availability of personal financial history may not seem like a big deal if you have a strong credit.  However, if you’ve had a misstep in your

financial past, it may be necessary to work toward improving it.

Here’s why.

The Cost of Borrowing

Furthermore, the purpose of credit information is to give creditors a way to evaluate the risk you present as a borrower. The more slip-ups in the past, the less likely creditors will extend credit to you in an affordable way. One of the ways lenders offset higher risk borrowers who have lackluster credit is by increasing the cost of borrowing.

Interest rates on lending products are lower for individuals who show a track record of on-time payments and responsible spending.  Late payments, accounts in collections, or filing bankruptcy, will result in denial of credit or a far higher interest rate.  Over time, a higher interest rate equates to a much higher total cost of borrowing, especially for major purchases.

Availability of Options

A lower credit score and questionable credit history may mean you have fewer options when it comes to securing credit. For instance, mortgage lenders may require more down payment from a borrower with poor credit than someone with excellent credit. Credit card issuers may require a secured account, meaning you must pledge an asset to obtain the line of credit. Individuals with an outstanding credit history have more account options, often with fewer restrictions than those with poor credit.

Employment Opportunities

Nearly 50% of employers now check credit history as a part of the hiring process.  A check of your credit allows employers to evaluate if you are responsible with your own financial resources. Poor credit may raise questions about your use of company resources and indicate you may represent some degree of risk.

check list

Whether it be a corporate credit card, supplies, client accounts, or other sensitive information. You may have the qualifications and experience, but without good credit, employers are more likely to select another candidate.

Buying Insurance

Insurers also evaluate credit as a method for determining the risk of an applicant. For instance, auto insurers may review your credit to understand how much to charge for premiumson a new policy. Most of all, insurance costs are typically higher for those with bad credit compared to others with a spotless credit record.

shaking hands on insurance deal

Renting an Apartment

Landlords and property management companies often look to credit history as part of the application process for renting an apartment. Housing costs represent a significant portion of monthly expenses, requiring landlords to know how well you manage smaller financial responsibilities. If your credit is weak, renting becomes a challenge, requiring more of an initial deposit or a co-signer.

Peace of Mind

Overall, having strong credit is a necessary component of living a financially healthy life. Not only can you obtain credit at a lower cost, you have an easier time showcasing your responsible financial behaviors. Employers, auto insurers, and landlords all look to credit performance that may impact you Financial future.  As a result, the best ways to improve credit is to avoid bad credit behavior before meeting these challenges.

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8 Comments

  1. Having worked in the mortgage lending field for 40 years; I can certainly agree with you about how important credit can be. The difference in interest rate between a 620 credit score and a 740 score can be around .50%; depending on the loan program. Over a 7 year period of time; that .50% (on a $300,000) mortgage will cost you approximately $20,000 more for that lower score. You are so spot on, Patrick, with what credit will cost…in nearly every aspect of our financial lives. Thanks for the great article!

    • Thanks Leissa for a very detailed comprehensive response to why maintaining good credit is so important. Being a mortgage professional you obviously get it. I couldn’t have said it any better. 

      As you pointed out the cost of a 620 FICO score can be around 50 basis points higher depending on the loan program. That adds up over the life of the loan and will cost plenty.

      That’s why people need to pay close attention to their credit score and implement ways to make it better.

      When the time comes to make a large purchase a consumer can save thousands by maintaining the best credit score possible.

      Glad you liked the article.

      Patrick

      Creditsquared

  2. Hi, Patrick!
    Thanks for your article.
    I wish I had read it a long time ago.
    Being a foreigner in the US I had to get to understand the entire concept of Credit Score and how it affects our day to day lives.
    We were very surprised that even though we had money in our bank accounts our scores were low because we had just gotten here.
    I remember that when we got our first cell phone lines, we had to make a deposit of $500.00 as a guarantee for each line!
    It’s a good thing that after a few months of being financially responsible our scores went up and things got easier.

    • Hi Elaine – Yes credit scoring in the US can be a little complicated for the uninitiated.  Even US citizens have difficulty understanding the process.

      Establishing a good credit score can take some time, as you well know.  You may have money in the bank, but creditors have no idea if you are a good credit risk or not.

      Having a credit card, some installment loan and mortgage loan history with no blemishes will earn you a good score over time. Once you improve your credit then you will find in most cases no requirement to deposit $500 for mobile phone lines or anything else that outrageous.

      Happy to hear things are in order now. 

      All the best.

      Patrick

      Creditsquared   

  3. Hi Patrick, thanks for all the info. I wish I knew earlier how to protect my credit score and took it more seriously.

    I had business partnership a while back and when we parted ways, they defaulted on a company vehicle I co-signed on and left with them.

    The lender never called me or attempted to contact me to say payments were being missed or anything!

    At this point my credit has almost recovered but it seems like it takes forever!

    Is there a way to speed up that process in that particular situation or am I stuck with my card as they were?

    Proper attention probably would have been my best bet i guess…

    • Hi Ben – Sorry to hear about your business partners ditching you.  That’s one of the downsides of co-signing on a loan.  

      Seems odd that the lender never called you, as they are usually on top of these things when it comes to recovering their loan.  It probably was an administrative oversight, as they should have contacted you to give your a chance to settle the debt.

      Once a charge-off hits your credit report there is not much you can do.  If the balance is still outstanding then work out payment terms with the lender or the collection agency and get it paid off as soon as possible.  If you have already settled the debt, then it’s just a matter time before it rolls off.

      If you are paying your bills on time, not carrying large balances on your credit cards, and you have a good installment loan history then it’s just a matter of time until all the bad stuff comes off.

      All the best.

      Patrick

       

  4. Hi Patrick,
    Your site is great. Thanks for showing us that if we don’t have a good credit we can’t do much of anything. So if I’m trying to dispute something’s on my credit report where do I go about doing that? Do you have information on how I can do that?

    • Kelyee –  Great that you enjoyed the article on the best ways to improve your credit.

      You are 100% correct that if we don’t maintain good credit we can’t finance the things we all strive for that make our lives better.

      If you have an item on your credit report that you would like to dispute, contact the credit bureau in writing with the details of your dispute.  The credit agencies are required to investigate and get back with you in writing as to the status of your dispute.

      All the best,

      Patrick

      Credit Squared 

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