Hello, my gorgeous readers. Today we are going to review easy steps to improve credit scores. Within that, we are going to go over five simple tips to establish a way better credit score. This way you can get the car, the apartment, and the home you someday want!
Number One: Become Best Friends With Credit Karma
Credit Karma is a fantastic site that allows you to monitor your credit score and get a full in-depth report of what’s impacting your score. The best part is, it’s completely free. They also have fantastic forecasting features. You can see if you pay off, say $500.00, of your debt what your possible new score will be. Or maybe the opposite direction, if you increase your revolving debt what could happen. They also allow you to search for new credit cards, auto loans, or personal loans as your score gets better and better. You can review your options for loans and credit cards straight from their site. It’s fun to see the change in cards as you work up your score. At least for me since I am a financial nerd.
When I was 18, I went buck wild and applied for every card I could and of course maxed out all of the cards. I was a credit companies dream. Luckily, I came across Credit Karma and was shocked. I didn’t even know what a credit score was at the time. Jump forward to now, I am debt free and only use my cards when I feel like it instead of when I don’t have the money in my bank account. We will get you there as well. You won’t be trapped to your credit card debt any longer. They will feel like freedom in your wallet instead of chains, I promise.
Sign up for Credit Karma here, and fast track your financial freedom. Just in case the options above didn’t do it for you they also monitor your credit score to make sure there isn’t any suspicious activity happening. They let you know about data breaches and the infromation that was taken. They Credit Karma assists with helping you beef up your passwords for better protection and gives you advice in general about security in this technology age. This credit monitoring site is something I open weekly and will help improve credit scores across the board for anyone.
Number Two: Using The Snowball Method
I’m going to lightly review this because it has its blog post, that you can read here. Essentially the snowball effect is taking the smallest amount of your debt account and focusing on just that one. While this may be true, that does not mean neglect your other credit cards because let’s be real they have abandonment issues. They will begin to call you non stop like a crazy ex-boyfriend. We don’t want that.
In other words, you would pay the minimum monthly payment on your other cards and spend the most you can on the account with the lowest remaining balance. To reiterate, we do not neglect the other credit cards; we pay the smallest amount possible! That is very important. Notice I am repeating my self to show it is essential! The snowball method is the most popular process of how to improve credit scores by almost every single personal finance guru.
Number Three: Debt Collectors
If you have debt in collections something you can do is call them. Before you call the debt collectors, there is some information you are going to want to know first — for example, the statute of limitations for your state. In most states, the statue of limitation applies to where you are living, not where you collected the debt. The statute of limitations in some places is three years for credit card debt, but in others, it can be up to ten years. Why is this important? To know this, we first should know what the statue of limitation is or what it means. It means the maximum time someone or an entity can wait to file a lawsuit against you. If the statue of limitation is running out of time the debt collector is much more likely to lower the amount you owe to them.
Tip: If you make a partial payment or admit to the debt, the statute of limitations resets. Try to avoid this as best you can. Remember every state’s statute of limitation can be different and the types of debt can also change the situation.
Another thing to keep in mind is the credit reporting time limit, which is typically seven years. Why is the credit reporting time limit important? Well, the credit reporting time limit is basically how long a bad debt can stay on credit report. If you are coming up on that seven-year mark, the debt collections know you have less and less reason to pay for the debt. Which is perfect because if they know, you have almost no idea to pay the debt they are way more likely to lower the amount owed. They will do this to get anything through the door from you.
Now that we know the legal stuff we are almost ready to call the debt collectors. The next step is figuring out how much you can pay. If your debt is $600.00, maybe you can only afford to pay $400.00 or three payments of $133.40. Before you call them get prepared for a counteroffer, so make sure you start the conversation a little lower than what you truly want to pay. The call is a negotiation. Also be ready for them to use your credit report against you. If you’ve started paying your other credit cards on time, they may use this as a way to get you to pay more, but continue with the amount you are prepared to pay. Don’t let them shake you.
Once you both agree on a payment make sure you get this in writing before you make a payment. A gentleman’s virtual handshake will not cut it for us ruthless finance warriors. Once you get in writing, you are set to make a payment and save your self some money. Woohoo! Please remember to look up your state’s statute of limitations. Also, read the Fair Credit Reporting Act to prepare your self as much as possible. They may so no, no matter what you do. Honestly, that is okay. You already are one step closer to getting your finances in order by even making an effort to do this.
Number Four: Consolidate Your Debt To Improve Your Credit Score
Another great option to improve credit scores depending on the amount of debt you have and the APR (Annual Percentage Rate) of your credit cards is to either get a personal loan or transfer your balance to a lower APR credit card. Getting a personal loan is an excellent option if you have multiple cards or debt with high-interest rates. Private loans usually have a lower interest rate than traditional credit cards. Loans can save you $100’s of dollars in interest fees alone. Having a straightforward payment each month for some people is extremely helpful. Credit Karma will help you shop around for the loans with the best rates and which ones you have the highest chance of being accepted with.
If you don’t want to get a personal loan, you could open a new credit card that has 0% APR for the first year. Another option is to find the credit card you already have with the lowest APR and transfer the balances over. Opening a new credit card that has the 0% APR only works if you pay the debt off before the year is up. Usually, the interest rate after the first year is higher than your original credit cards. Which means be cautious with this method. If you can not pay the debt before the “ticking time bomb explodes” do not use this method. If your outstanding payments are still at a manageable level for you and you just weren’t ready to start paying it down, then this method will work to improve credit scores.
The last option we will talk about in this section regarding how to improve credit scores is to transfer the credit debt over to a card you already own. This method only works if you have the credit available on the account with the lowest interest rate. If you do have the available balance on the card make sure to read the terms of your credit card. It may look like the lowest rate, but if you call about balance transfers there may be some hidden fee’s or the interest rate could up by doing this. Just make sure to phone some of your credit card companies to find the ultimate card to transfer the debt. Don’t forget to ask about the process of moving the debt. Every credit card company may have a different method.
Number Five: Cut Down Your Expenses
Lastly, and probably the easiest option to improve credit scores is to cut down on your spending. I guarantee after you looked at your budget you found things that were not necessary to your survival. Starbucks is probably one of them. Starbucks is something I am trying to get my boyfriend to cut out of his life, so trust me I get coffee is the lifeblood of most human beings. Make your coffee at home. Go to Pinterest and look up how to make Starbucks cheaply at home. I bet you’ll find some fantastic recipes that are way less expensive. Toss cable for Netflix or Hulu. If you are eating lunch out most days while working, start making your meals. Same goes for dinner. Eating out is expensive and can be super unhealthy as well.
I have listed just some examples of what most people spend money on that they don’t need. Pull your bank statement from the last three months, grab a highlighter, and start reviewing everything where you are spending money. Highlight all of the things you know you didn’t need to buy. Start looking at the things you can cut out.
Once you have finished add it all up. The process will be painful, and you will hate your self. Just remember you are getting your act together and you are in this for the long haul. Once you have added everything up you can now see you probably could have paid off some of your credit cards already. Use this as motivation to cut down your spending for this month. Eventually, it will be second nature to you. Once this month has been completed, do the same thing for the following month. Take it one month at a time, and you will see this method works to improve credit scores.
Summary of How To Improve Credit Scores
We have reviewed five different options on how to improve credit scores. The first thing we discussed was signing up for Credit Karma always to have a friend on our side financially and one that doesn’t judge us. We reviewed the snowball method, which is paying the smallest debt we have, the highest amount we can. Also, we will spend the minimum on the other cards to make sure they don’t go into collections.
If we let them go into collections, we will have to go to option three and call the debt collectors to negotiate the cost down. Another option we discussed was consolidating our debt or getting a personal loan. The last option we went over was cutting the unnecessary Starbucks and dining out from our lives.
How to improve credit scores may seem like a daunting task, but take everything one step at a time. I always say with eliminating debt there is no easy fix, but we can make it simple. I hope this article was everything you hoped for when the article popped up for you. As always if you have any comments or suggestions, I am still here for you for all of your budgeting needs.
Xoxo,
The Finance Fairy