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  • Andrew Lokenauth

HERE'S HOW YOU GET AN 800+ CREDIT SCORE FOR FREE:

Updated: Nov 11

The majority of Americans have a below-average credit score and credit score repair can cost thousands of dollars, if you want a higher credit score, read this:




Why are credit scores important?

Lenders use your credit score to assess your risk level to them. The lower your credit score, the higher of a risk you are to a lender. The higher of a risk you are, the higher your interest rates.

Credit card utilization:

The easiest way to raise your credit score is by lowering credit utilization. You can boost your score by using less than 30% of your total credit line. Asking for higher credit card limits can help with this.


This helps, because when your credit limit is increased, but your average monthly balances stay the same, your overall credit utilization will be decreased, and this helps improve your credit score.

Credit inquiries:

You can build credit by limiting “hard inquiries”. Applying for credit cards hurts your credit score if lenders do a hard pull inquiry. Hard pulls can reduce your credit score by a few points. A hard pull will affect your credit score for about 3 to 4 months. Only do soft pulls if you are able to.

Credit age:

You can build credit with the length of time you hold a credit card. The average age of your existing credit accounts for 15% of your credit score. The longer your credit card history, the better for your credit score.

Payment history:

One of the biggest factors that influences you credit scores is payment history. Late payments are the largest part of your credit score. Payment history makes up 35% of your score.


Paying down a credit card balance in full every month will help increase your score! Due to this, I advise to pay off balances in full, and not carry over a balance. Automatic Bill Pay can help build credit by making all your payments on time. Setting up automatic payments will make sure you do not miss a payment.


One missed or late payment will have a negative impact on your score. Late payments can be a big deal, because they count significantly toward your credit score calculation. Unfortunately, late payments can stay on your credit report for up to 7 years. Late payments appear on your report as either being 30 days late, 60 days late, 90 days late, or 120-plus days late. Each of these degrees of delinquency has a different impact on your credit.

Because payment history makes up around 35% of your credit score, automatic bill pay is an easy way to boost your credit score.

Credit card myth #1: Keeping a balance to boost credit

Don’t keep credit card balances to “build credit”. This is bad advice because not paying a credit balance in full each month leaves that balance to accrue additional interest each month, and these charges continue to grow larger and larger due to compound interest.

Credit card myth #2: Paying off a loan early to boost credit

Paying off a loan early hurts your credit score because of two reasons, (1) credit card utilization and (2) average age of credit. A credit score drops after closing a card because it affects both your credit utilization rate, and the length of your credit history.


Credit utilization is the percent of credit you use, compared to total credit you have available. So by closing a credit card, you reduce your total available credit, which lowers your credit score. Because credit utilization makes up 30% of your score, it can be a big deal.

The average age of your existing credit accounts for 15% of your credit score. The longer your credit history, the better for your credit score. So by closing a credit card that has been open for a long time, you can reduce the average age of the accounts on your credit report. When a loan or credit card is closed, it’s taken off of your credit report, and it causes your average account age to decline, especially if the card you closed was your oldest account.

Credit card tip #1: Waiving credit card fees

Most credit card companies are lenient if you have a good payment and spending history. Talk to customer service and explain your situation. Call customer service, and remind your credit card that the fee is not a frequent occurrence, and that you are requesting to have the fee waived. It never hurts to ask as the worst answer you can get is “no”!

Credit card tip #2: Debt consolidation

One of the best methods of debt consolidation is a balance transfer to a new credit card which offers 0% interest for a period. Make sure to compare the cost of the balance transfer fees against the amount of interest that you are currently paying on your current credit card.

If the balance transfer fee is higher than the interest you are currently paying each month, a transfer may not help you. However, if the balance transfer fee is less than the interest you are currently paying each month, then the balance transfer fees can be worth it.

Transferring a balance can be a great way to escape debt quickly and spend less money on interest payments. Balance transfer fees are worth it, if you are able to save more money than the amount of the fee.


Transferring a balance to a lower interest rate card can help you reduce your monthly charges. You also have the opportunity to save money because you will accrue internet at a lower rate.


Another benefit of balance transfers is convenience. If you have a lot of debt, you can use a transfer to consolidate all of your debt into one place. This will allow you to make a single payment each month, instead of having to deal with different creditors and different due dates.

Credit card tip #3: Using the avalanche method to pay down debt


The debt avalanche method is the best debt payoff method, it saves money in the long-term. This method focuses on paying off balances with the highest interest rates first, regardless of total balance.


Because of this, this method results in paying less interest over the life of the loan, because you are focusing on paying off the debts that carry a higher interest rate. Based on math, the debt avalanche method is the best strategy that uses money as a tool, because it will save you money due to paying less interest in the grand scheme of things. Mathematically, it makes sense to pay off debt first that charges a 21% interest rate on a $100 balance, over debt that is only charging a 4% interest rate on a $100,000 balance.

Credit card tip #4: Budgeting

You can protect yourself from a credit card balance by working on a budget. Creating a budget can help you better track your money. Not having a budget can make it difficult to know where you are spending your money, or difficult to have control over your spending in general.

Why improve your credit score?

The higher your credit score, the more likely you will be approved for a mortgage. Your score helps lenders assess how much of a risk you are, in terms of paying back your line of credit. If you are a high risk, you will have a hard time finding a lender to let you borrow money. If you are a low risk to pay back a mortgage, you will have an easy time getting a loan and receive favorable interest rates.

If you don’t have a strong credit score, you will not be pre-approved for a mortgage, and you will not look like a strong buyer and will be looked over.



 

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