As a banker, I often hear remarks about ones Beacon Score being low because of poor credit management. The Beacon Score (also called Fico Score) is one of the major factor in a credit analysis. Whenever you apply for a credit card, a mortgage, a personal loan or a line of credit, the financial institution will pull out a credit report and look at your score. If it’s not high enough, you could be declined base solely on this information.
|Your Credit Score is not only about paying your bills on time. As there are several factors that influence your Fico Score, I am presenting for easy ways to increase this magic number.
#1 Verify what lies in your credit bureau
This may seem stupid at first as what is supposed to be in your credit bureau should be your own debts and nothing else. However, this is not the case for many individuals. The first reasons would be because people think that when they stop using a credit cards or cut them and thrown them in the garbage, the account is closed. Well it’s not until you take the time to call the financial institution and request the account to be closed. The second reasons would be related to the fact that people tend to forget small bills and they could completely ignore a $25 balance on their latest furniture financing bill. The third reasons would be caused by fraud attempts under your name. This can damage your credit score for a long period of time if you do not catch it in a short period of time. For these three reasons, I strongly recommend that you order your credit bureau from Equifax (equifax.ca or equifax.com) once a year.
#2 Apply for a credit card now
As I previously mentioned on this blog, it would not be a bad idea to have three to five credit cards. Credit cards are the easiest way to build a strong credit history. All cards are reported on a monthly basis to the reporting agencies which is not the case for other loans held at the bank. While you benefit from a periodic reporting, you can show financial institutions that you are able to manage revolving credit. The best things to do with credit cards is to use them so their owing balance fluctuates over time.
#3 Use it on a daily basis
Yep, you just read “use your credit cards on a daily basis” on a personal finance blog. Put as much as possible of your recurring expenses on your credit cards. I am talking about groceries, restaurant, transport, utility bills, clothes… basically everything that is already on your monthly budget. It is important to not look at credit cards as a gift from God (it’s not!) but really a tool to build a stronger Beacon Score and get rewards from your regular expenses. At the end of the day, you have to pay for these expenses, why not using them to get something out of it?
#4 Pay your bills in full and on time
While I am telling you to use your credit cards on a daily basis, you must keep in mind that you will have to pay the full balance when your bill will come at the end of the month. This is the perfect trick to improve your Fico Score; use your credit as often as you can while paying the entire balance at the end of the month. If you can not make the full payment, make sure that the one you make is one time. A late payment on a $10 bill has the same impact on your credit bureau than not making a $1000 payment. Credit is based on trust, no matter what is the amount.
If you want to know more about how to improve your credit score, please check-out my archive under the credit score category. I am trying to include as much as revelant stuff there.
|This is a great question and it was debated on many blogs. However, while I am not saying I am in possession of the absolute truth, I can give you a bit of insider information as I am a banker and I know credit inside out.
Building a strong credit score requires a lot of self discipline and a great control over your personal finance.The best way to improve your credit score is to show the financial institutions that you are able to use your available credit while making your payments on time and not overloading your credit card.
Use your credit card on a monthly basis
Credit is all about confidence. It is related to financial institutionsâ€™ confidence in your ability to pay them back. If you do not use your credit, how would they be able to know if you are able to pay back or not? The easiest way to improve your credit score is by using your credit cards every month. Credit cards companies always report to credit reporting agencies such as Equifax or Transunion. This monthly update will provide financial institutions with relevant information in regards to your payment abilities. Credit cards are also one of the easiest type of credit to get. A bit of income, a two pages application and you receive your new card in the mail along with a free T-Shirt!
Manage the balance on your credit cards
Another factor that influences your credit score is the balance used versus the amount of credit you have at your disposition. This is what we call the â€œbalance to available credit ratioâ€. You divide what you owe by your total credit limit (this include all revolving and non-revolving credit). If this ratio is high, your Beacon Score will be hurt. The key is to keep balance at a low level. The best way to improve your credit score is to pay the entire balance of your credit score on a monthly basis. Therefore, the credit reporting agency will give less importance in the credit card balance when they calculation your score. You are also better off with 1K owed on five different cards than one card with a limit of 5K that is maxed out.
Keep several accounts opened and active
This is where it gets tricky. Too many credit accounts will scare most bank and make your credit score drop because you have potentially access to too much credit. However, if you only have one of two credit cards, your balance to available credit ratio will suffer. The key is to keep about three to five credit cards and use them on a monthly basis. Credit cards are free of use and give reward point. Click here if you want more information on why you should use your credit cards. If you have substantial limit, such as over 10K, I would recommend only three cards. However, if you are starting to build your credit history, your credit card limit will be lower. Then, you should get about five cards. The key is to use them on a regular basis and paying the whole balance whenever you get your bill. Donâ€™t be late, if not it will eliminate any improvement on your credit score.
In the end, you will be able to improve your credit score by using three to five credit cards on a regular basis and pay the entire amount upon reception of your monthly statement. With that method, you will not only improve your credit score but you will also gain rewards points. The best part is that it will not cost anything as stores are paying for the credit cards usage, not you!
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This post will be the first one of a series on how to improve your credit score. As a banker, I have the opportunity to look at several credit bureaus. In fact, I see more than a thousand a year. After several years, I had noticed some trends as of to what could influence your credit score and what not. You will probably notice that this article is basic in term of credit if you are already well aware of how credit report works. I did it on purpose in order to have everybody on the same pace for the following posts about this topic. Most people do not know that it’s their responsibility to check what lies in their credit bureau. It may seem to be nonsense, but you are fully responsible to validate the information in every credit report you may have.
Order your credit bureau
The very first step to improve your credit score is to order your credit bureau. I previously wrote a post about how to order your credit report. In addition to what you can find on this post, I would say that it worth paying to have a complete report along with a FICO/Beacon Score. I prefer Transunion credit reporting agency in regards to credit bureau. They produce complete and reliable reports on your credit behaviours. However, it would be important to ask your banker which company they use when you apply for new credit. You will then be able to look at what your bank uses to establish your credit worthiness.
Soft Hit, Hard Hit
We often hear that checking your credit score or to pull out a full report will hurt your scoring. Nothing can’t be further from the truth. The last part of your credit bureau shows all the hits you had on your credit bureau. A hit is a request by any institution to look at your personal information. There are two categories of hits.
Soft hits include when you check your credit report through a credit reporting agency, when an insurance company requests your Beacon Score in order to make a better offer (Beacon Scores are now related to a risk grid, Iâ€™ll get back to this topic another time) or when your financial institution is renewing one of your product (withdrawal limit on debit cards, credit cards renewals, lines of credit renewals, etc.). Theses hits show on your credit bureau but they do not influence your credit scoring.
All other hits are considered to be hard hits (when you apply for car financing, a new credit card or shopping for a mortgage). A hard it will affect your Beacon Score by 1 to 5 points. Unfortunately, I was not able to find precise information in regards to the variance. However the following situations are considered to count as 1 single hard hit: if you make several requests for the same type of financing (such as shopping for a mortgage through different institution) or multiple request through the same financial institution (if you open a line of credit for example, you will have a hit for the application, another for the creation of the debit card and a third one for the withdrawal limits). You must keep in mind that the hits must be done in a span of about 10 days. If you take two months to shop for a mortgage rate, you will have more than one hard hit on your credit bureau.
Omission and errors
One of the easiest ways of improving your credit score is to verify if you have any mistakes made in your credit bureau. Be very cautious about financing program for furniture or electronic, reporting on student loans and special offer on credit cards. These are the worst for mistakes. Once you are done with a debt and you want to close the account, make sure to request to your financial institution a letter confirming that your account is in good order and will be close. You will save a lot of time with credit reporting agency if you need to repair your credit bureau.
If you are looking for more information on how to read your credit bureau, I previously wrote two posts about how to order your credit bureau and how to read your credit bureau. I will continue this series on how to improve your credit score in the following weeks. Please feel free to add any comments or ask any questions in regards to this topic. Iâ€™ll take good notes of them and make further research to get the best answer possible.
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