How to Improve and Manage Your Credit Score
Running Time: 7 minutes
If you have amazing credit, then you have no need to watch this video. However, if your credit is just OK then this video can help you improve those credit scores.
When I was 18, they gave me my first $300 credit card that I immediately maxed out on a boom box. When I was 20, they gave me a $1500 credit card that I also immediately maxed out on my first computer. When I was 24 and moved out on my own, they gave me a $2500 credit card that I maxed out on a washer, refrigerator, and a microwave. I still have, and use, that microwave oven 24 years later. Best damn thing I ever bought.
When you are young, It’s so easy to run up debt, because you don’t have anything your parents didn’t give you. The older you get, the more expensive the items you need to buy. TVs, Couches, Cars and freaking dining room sets.The amount of expense throughout your 20’s and 30’s is astronomical. No wonder everybody is broke.
Reviewing Your Credit
But of course, the first thing you need to do to improve your credit, is to actually get your credit report. However, understand that a free credit report from CreditKarma.com is not a complete picture. It only serves as a guide to help keep an eye on things. CreditKarma does not list notations in your report, or other nuances that you will only get direct from the bureaus themselves. There are pay services online like IdentityClub.com that are more comprehensive than CreditKarma, but I have found that even they are lacking some of the details.
In fact, this system is so messed up, you can’t even trust the services directly, like from Experian’s website either. They still show me scores 100 points lower than everywhere else. How could this be? Because the data isn’t accurate or updated in a timely manner, so it says I still owe tens of thousands more than I actually do.
In general, make sure that your credit report is accurate and that there is nothing fraudulent about your financial activities stated there. You can get one free credit report per year from the three major credit bureaus, which means a free and accurate credit report every four months if you space them out properly from each of the companies. For me, the worst credit offence I have ever had was that I once lived in a condominium, and another John Ross moved into the other side of the complex. It took about a minute, but our credit reports were fused together, and a combination of both of our income and expenses were completely mixed up. That was a complete mess.
Bad Credit Starts Somewhere
Because you need new things before old things are even paid for, it’s easy to get yourself underwater with too much debt. Sometimes, we may not be able to keep all the payments up to date. I’ve long been a freelancer, and I never know when I am going to get paid. If you have a history of being unable to easily pay your bills on time, then you may be repeating the same habits further down the road. As much as you don’t want to hear it, there is probably a reason that your credit score is lower than you would like. It could be dumb late payments, or a full blown bankruptcy.
In any event, the best way to repair credit is to tackle the problem at its source. How you ended up with this credit score in the first place may have been a one time occurrence, but for many American’s, it’s likely due to poor financial decision making. Getting good credit should be a fundamental effort that addresses financial issues at its core, such as proper budgeting and a healthier attitude towards spending. Don’t be fooled by companies claiming they can magically clean up bad credit reports without any significant time and effort on your part. But I’ll talk more about what they were able to do for me, in just a moment.
I’ve always been bad with credit. At first things go fine, and I can easily make the payments. But then some emergency comes up, and I need to charge more than I intended to. Now I would have to start making payments higher every month. The seasons change, and new clothes are needed. Over the course of several months, I would find that if it wasn’t for the limit, I would have just kept right on spending. So, before you try and fix the credit score, you need to fix the habit. Only THEN should you fix the credit score.
Fixing Your Credit
If you do have really bad credit, don’t worry—you can still fix your poor credit even if you feel like it’s damaged beyond repair. Sometimes, you can repair your credit by disputing wrongly recorded info with credit agencies. In some cases, you can report identity theft if applicable to do some quick credit repair work.
When you get your hands on your report, make sure to check thoroughly for any errors. A whopping 25% of all credit reports are riddled with serious errors, so you really have to comb through the information to make sure you don’t end up damaging your chances to get a loan just because of a typo. I was just looking at ours, and Experian is the worst by far, having the oldest data still on record. If you need your credit to buy a car or house, then you should look into this stuff at least 2-3 months ahead of time.
If you do spot an error, be sure to dispute it right away. Requests for correction can be done online, by mail, or by phone. Be sure to provide complete documentation like proof of your identity and proof of the erroneous information. If your credit report says you paid for something late even if you actually paid on time, make sure you can provide any receipts or billing statements that can correct those mistakes. Remember to ask nicely—it always helps to keep everyone in a good mood even when you’re filing a dispute.
Other Long-Term Budget Choices
Obviously, the best thing you can do is to actually pay your balances on time. Like, I know, Pfft, right?! This successfully proves to both your current and potential creditors that you’re responsible enough to borrow again. You can also take advantage of the good credit standing of someone you trust, say, your spouse or parents. If they have a spotless payment history, they can add you as an authorized user or a joint applicant. The biggest regret in my adult life is to have always had bad credit. It was rare I qualified for anything I truly wanted… except houses in 2008. We could literally take out loans to buy houses all day long, and nobody cared. Good times…. good times.
Don’t sweat the small store cards that offer you clothing or electronics. You need to be building 3, 5 and 10 years down the road for cars, a house, and…. well, that’s all you really need it for. Maybe refinancing the house, but in your day to day life, learning to live in a cash based system has many more advantages. I cover this in many of my other videos.
Take note of your credit utilization rate, which is the ratio of how much you owe to how much credit you have. This debt-to-income ratio can affect your credit score, so keeping it below 30% should be your goal.
Finally, you need to discipline yourself not to spend more than you can afford in the first place. Figure out what’s hurting your credit score and avoid making the same mistakes again. If you’re having a hard time budgeting, you can opt for some consumer credit counseling to help you get back on your feet.
Credit Repair Companies
When everything else fails, you can ask a credit repair company for help. They’ll try to improve your credit standing for a fee, by disputing errors and negotiating with creditors. Just be sure to give the company a thorough background check first so that you know what you’re getting yourself into.
I have another video that I’ve talked about my own experience with one such company, and I’ll include a link below. The other video has more detail, but my recommendation is to only sign with them for about 4 months. That’s when all the big moves are made. After that, not a single thing was able to be removed for me. Knowing that, you can decide if the cost for 4 months worth of service is right for you.
But overall, once you have cleaned up your past credit record, and did what you could to get your scores up, then all you really need to do is keep paying everything on time, and don’t go over 30% of your overall Debt to Income Ratio. Keep your head down, and let the old items slowly fall off your record. A lot of this is nothing more than a waiting game.