Tips from a Senior Loan Officer: Cleaning Up Your Credit Score

In the world of credit, the absolute worst thing you can do is to stop using it. There’s this misconception that when your credit score takes a hit, it takes a long time to bring it back up. 

We all know of younger borrowers who default on student loans or get into some credit card debt and give up because they think it’s impossible to rebuild their credit score.

The trick is: Don’t think about it like this years-long investment to prove yourself. Instead, think of your credit score as the answer to the question, “What have you done for me lately?” I’ve seen people that have foreclosures, bankruptcies, and other serious delinquencies, but because they had several other pieces of credit that were paid on time, they still maintained an above-average credit score. 

For a bank, a credit score of 740 or higher is the highest bucket to be eligible for the best interest rates. Here are some tips to get your credit score there, and keep it.

Have several credit cards.

At least two to three. Having several cards will make it easier to keep your debt utilization ratio low, and help your credit score. Installment loans, like student loans and car loans, don’t have as big of an impact as credit cards do, and just having those isn’t sufficient enough. You need a mixture of both to earn the highest credit score.

Always keep the balances of those cards below 30% of the limit.

You want your credit to be working and building; It’s not as effective if your card’s balance is at zero. A common mistake I see often is people who have, for example, a credit card with a $5,000 limit, and they’ll spend $4,500 per month to run up points, pay their bills, etc. And then at the end of the month, they’ll pay it all off. In their mind, that’s good. But the problem is, for the majority of the month, their card is maxed out. That’s going to reflect on your credit, and your score will be lower.

Ask your credit card company to increase your limit.

If you’re that person spending $4,500 a month with a $5,000 limit, ask your credit card company to increase your limit to $15,000. In fact, on a yearly basis, you should be asking your credit card company to increase your yearly limits. It’s a very simple task—there’s usually a link on the app and they don’t do a hard pull on your credit. If you have more space on your credit card, your score is going to go higher and you don’t even have to make a payment.

Call the collection company and settle your bills. 

A lot of times people will go to the doctor and, for whatever reason, the insurance company doesn’t cover the whole bill. Next thing you know, you don’t see the bill and you have $200 in collections. My advice, instead of calling the insurance company and trying to get them to pay your bill, call the collections agency. They’ll usually settle for 50 cents on the dollar. Then tell them that in exchange for the settlement, you want it to be deleted from your credit report. Almost all of the medical collection companies do that. It’s always good to try and negotiate that as part of your settlement. 

Secured credit cards help. Being an authorized user is better. 

The challenge with secured credit cards is there is usually a $500 limit. So, to spend only 30% of that only gets you so far; maybe you put your metro card and your coffee on it. It also reflects as a brand new credit card, so it takes a while for that history to build and reflect on your credit score. What’s better is something called being an authorized user. I can, for example, add anyone onto my credit card as an authorized user. What happens, is in 30-45 days my entire credit history for that card will copy onto that person’s credit report, and give them instant credit history. And you can become an authorized user on anyone’s card, it doesn’t have to be family—you just want to make sure that card has a low balance and is always paid on time.

Don’t be quick to jump into debt consolidation or credit repair.

Debt consolidation should be your last resort because it’s going to affect your credit. You can always borrow against your retirement to pay off some of those high-interest credit cards. You could look into a personal loan from companies like SoFi or Lending Club, chances are the interest rates for that will be less than what you’re getting on those credit cards. Budget. Go through what you can cut out of your expenses. We’re in a world right now where you really don’t need to buy clothes, you’re probably not dry cleaning, you don’t need a haircut as often as you used to, nobody is really traveling. So, now is the time for you to actually focus on paying down those credit cards, more than ever. 

Usually, it’s just a matter of people not using credit that holds them back; you don’t need a credit repair company to do that for you. You just need somebody to give you good advice—and to take it.

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