Five Tips to Improve Your Credit Score

If you're applying for a mortgage or any other kind of loan, it is important to have a solid credit score. If your credit score is low, you'll be offered a much higher interest rate. If it is extremely low, you might not qualify for a mortgage or other kind of loan at all. Millions of people in the United States have low credit scores, and unfortunately, few people are working to change that. If your credit score is low, do all that you can to begin that climb toward a perfect score. Here are five tips you can use to start on that journey to better credit:

Tip #1: Close old accounts.

When your credit score is figured out, one of the things they take into account is your debt potential. Sure, you might not have much debt today, but if you wanted to, how much debt could you accumulate over the next few hours? For example, if you have three credit cards, each with a limit of $10,000, your debt potential is $30,000. That's pretty high, even if you are only carrying balances on two of those cards and the total of those balances is under $500. So, if there are cards you are not using, close them. Don't forget that store credit cards, like the ones they get you to sign up for in order to get a percentage off of your purchase, also contribute to this debt. Make sure that you close the accounts if you don't want them - cutting up the card isn't enough.

Tip #2: Negotiate with lenders to pay old debts.

Are you having trouble paying an old credit card bill or other kind of loan? Maybe you have a $5000 doctor bill from five years ago before you had health insurance. Maybe you bought a car and still owe money on it, even though you crashed that car and it is now a pile of scrap metal. These kinds of debts are weighing you down, and it is tempting to pay other bills first and pay these only if you have some extra money lying around. Don't fall into that trap! Instead, call lenders and work out a payment plan that works for you. If you can't pay off the debt all at once, ask if they are willing to reduce the debt a bit if you pay it off more quickly. Or, if you can't afford that, as if they will accept lower monthly payments if you pay a higher interest rate over time. The goal here is to pay your debts on time every month, whatever that payment plan will be.

Tip #3: Check for mistakes.

You should be checking your credit score annually for mistakes. Yes, mistakes happen, even on such an important document as your credit history report. Because of basic human error, numbers get entered incorrectly quite easily. This means that you could be listed as having $100,000 worth of debt instead of $10,000 worth of debt! Even worse, if the person enters the social security number incorrectly, you could be listed as having debt when you don't have any at all. The errors can also come directly from your lenders, or they could be a result of identity theft. No matter how they happened, check your credit score annually to clear up the problems.

Tip #4: Ask for help.

A financial professional is your best bet for raising your credit score significantly. If you're just not good with money, it might be time to admit that and ask for help. A financial professional and recommend a budget plan that works for you, as well as help you negotiate your bills with lenders or, if it is in your best interest, consolidate your loans.

Tip #5: Avoid foreclosure.

Foreclosure wreaks havoc on your credit score, and that information remains on your credit history for seven years n most cases. Instead of allowing your home to be foreclosed, it is a much better option to try to sell it yourself. That isn't always possible, be f you foresee money problems in your future, do your best to get your home on the market and sell it in order to repay your own mortgage. It is better than the bank doing it for you!

Of all of the tips above, there is one financial tips that is even better - be proactive about your financial history. Although dealing with money can be difficult, if you are responsible from the start, you should be able to keep your credit score fairly high.

By: Stephanie Larkin

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