Improving Your Credit Score and Credit Rating Is the Simplest Way to Save Money While Improve Your Lifestyle

What is the simplest way to save money while improving your lifestyle? The answer is to improve your FICO® credit score. Improving your credit score will likely cost you nothing but can improve the average household’s monthly income by $389. That’s $4,668 per year!

Your FICO® credit score is a number between 350 and 850 that banks and lenders use to determine your credit worthiness and thus your interest rates and monthly payments. The number is based on your credit history including your outstanding balances versus your maximum allowable limits. Examine the table below to see how improving your credit score by 100 points can make a huge difference.

* The above numbers come from www.myfico.com on 3/16/2009

The best way to maintain and improve your credit score is to understand how it is calculated and to continually monitor this important score. Here are a few pointers:

1)    Make your payments on time – this also eliminates late payment fees.

2)    Minimize the number of new applications you make for new credit as each credit inquires reduces your credit score. Minimize shopping for credit!

3)    Keep your average length of credit history long. Keep older credit cards active and avoid adding new cards that reduce your average credit history length.

4)    Don’t make payments by mail as this can lead to a lost or stolen check, and late payments! Make payments more safely online!

5)    Don’t have too many cards. 15 gas credit cards and 15 store credit cards are ridiculous and too difficult to keep up with. Just have a few major credit cards.

6)    Keep your balance due low relative to your maximum credit allowed. This can be done by asking your creditor to increase your maximum limit, but you should remember not to use this additional available credit.

7)    Don’t wait to get a statement to pay the credit card. Go online a pay down the balance before a statement is generated. The outstanding balance shown on the monthly paper statement is what gets reported to the credit agency. Reducing this balance before it is reported can dramatically improve your credit score.

Of course, the above information alone is not enough to reverse your credit issues. These issues are covered more thoroughly in the book Poor No More: Wealth Is Within Reach by Curtis Hill. This book is a must read for improving your credit! Click Here To Buy On Amazon

This book’s author, Curtis Hill, CERTIFIED FINANCIAL PLANNER™ will also cover many of the issues which got you in debt in the first place.

Eight Bad Assumptions That Hurt Your Credit Score:

Many people make wrong assumptions about how to improve credit rating and how to improve credit scores. Don’t believe that your assumptions are correct.

Bad Assumption #1: Lower maximum card limits improve my credit score.

Credit scoring programs don’t penalize you for having higher credit limits. However, they do penalize you for having high balance relative to your limits. A $2,000 balance on a card with a $2,500 limit greatly reduces your credit score. However, if you increase the limit to $10,000 on the same card, a higher credit score results because you look less “maxed out” on your credit cards. Moving that balance to a higher maximum limit card could also improve your score.

Bad Assumption #2: Always paying the minimum will result in a good credit score.

Of course not paying the minimum will negatively affect your credit score. However, paying that minimum will not usually result in a good score either. The key issue is keeping your reported outstanding balance low relative to the maximum credit limit. Keeping your balance at less that 10% of the maximum credit limit is good. A balance over 50% of the maximum could dramatically reduce your credit score.

Bad Assumption #3: Always paying by the due date will result in a good credit score.

Obviously paying late will reduce your credit score, but it takes more than timely payments to get a high credit rating. Why wait to get a paper copy of a bill. Go on line three times a month, review your credit charges, and make on line payments. Thus you are never late. There is less chance of successful identity theft since you see the charges earlier, more often, so you can take corrective action earlier. But most importantly the reported balance to credit reporting agencies is reduced. What normally gets reported to the credit agencies is the balance on the paper bill. Reducing this balance by paying before the bill is generated will improve your debt ratio and your credit score.

Bad Assumption #4: Paying my bills the day the mail delivers results in a good credit score.

Waiting for the bill in the mail and paying by check through the mail is very 1970. Snap-out-of-it grandma! If you get 10 bills a month, that’s 120 chances per year for the post office to mis-deliver or for you to lose the bill. Plus another 120 chances for your return check to get lost in the mail, taken for identity theft, or misdirected to the wrong account. Go on line to make your payments and get verified proof (a transaction confirmation number) that the payment was timely and correctly recorded to your account.

Bad Assumption #5: Totally paying off the debt to zero the day the mail delivers results in a good credit score.

The amount of your payment is not used in determining does your credit score. For credit scoring purposes, a timely minimum payment is just as good as a total payment. Credit scoring programs don’t care if you totally payoff the debt every month. These programs only care what the outstanding balance was on the date the bill is generated. Waiting for the bill in the mail and paying by check through the mail will hurt your credit score! Go on line and pay down your credit card bill before a statement is generated and reported to the credit scoring agencies.

Bad Assumption #6: Closing old credit cards will improve my credit score.

Closing an old account will only reduce the average age of your credit, which will reduce your credit score. Try to keep your older credit lines open. If you need to close some credit lines, do this on your newer credit lines.

Bad Assumption #7: Moving balances to a lower interest rate card will improve my score.

Interest rate and minimum payments are not a factor in determining your credit score. However, opening new accounts, to take advantage of a lower interest rate can be very detrimental to your credit score in three ways. First, a new credit line always reduces you credit score. This reduction can be extreme if you open more than one new account within six months. Second, a new credit line normally requires a new credit inquiry, which will also reduce your credit rating. Third, a new credit line will reduce the average age of your credit, which also reduces your credit rating. Be very judicious in opening new credit accounts.

Bad Assumption #8: Shopping around for the best interest rates will improve my score.

Credit scoring programs do not like changes. Multiple credit inquiries and opening new accounts will reduce your credit rating. Waiting six months between credit inquiries will improve your score. If you are shopping (lets say shopping for a car) try to complete all the similar credit inquiries (car dealership credit inquiries) within 14 days so that they may all be counted as one inquiry by the credit scoring programs. Do not allow people to obtain your social security number or to run a credit check unless you are serious and ready to buy. Too many inquiries could prevent you from having the credit to buy.

Again this short article can’t provide all the information needed to improve your credit rating. These issues are covered more thoroughly in the book Poor No More: Wealth Is Within Reach by Curtis Hill. Your small investment in this book could pay back many times over in savings on interest charges and other issues! Click Here To Buy On Amazon