One of the first and most important tasks most everybody should tackle as an adult is establishing and improving their credit score. That’s because people with great credit enjoy lower loan rates that can result in serious monetary savings.
It’s no secret that mortgage rates can vary by 1.5 percentage points or more between the highest and lowest credit tier.
To put that in perspective, if you borrow $200,000 and get a 30-year mortgage at 5%, you’ll pay $176,011 in interest over the life of the loan. On the other hand, if you have to pay 6.5%, you’ll end up paying an additional $66,994 over the same time period.
So how can you improve your credit score? Well, I think I have more than a few ideas, both directly and indirectly. Here they are in no particular order.
- Get a credit card and establish a credit history.
- Better yet, get two credit cards. Then use them responsibly.
- If you have had problems in the past, reestablish your credit history ASAP.
- Understand how people of modest means have learned to stay out of debt.
- Never be late paying your mortgage.
- Don’t consolidate your credit card accounts.
- Resist the urge to cut up your old credit cards.
- Cut up your old credit cards, but don’t close the accounts.
- Raise your credit limit; many times the credit card company will do it if you just ask them.
- Emulate your next door millionaire neighbor.
- Take advantage of the power of payment reminders; consider automatic payments.
- Avoid bouncing checks.
- Don’t be a deadbeat.
- If you do bounce a check, pay it off before your debt is reported to a collection agency.
- If you can help it, never apply for bankruptcy.
- Don’t emulate your next door neighbor.
- Understand the difference between a want and a need.
- Don’t apply for a new credit card.
- Use your credit cards for everything you can, then pay them off in full before the statement date.
- Be patient.
- Develop a healthy disdain for paying interest.
- Get a copy of your credit report and go over it with a fine-toothed comb.
- If you find any inaccuracies on your credit report, vigorously dispute them.
- Don’t be greedy.
- Ensure your debt-to-income ratio stays as low as possible.
- Don’t open a lot of new credit accounts too quickly.
- Understand that the power of compound interest is a double-edged sword.
- If you have missed payments, pay them off and then keep them current for evermore.
- Motivate yourself by realizing that the odds of buying your own home without a loan are slim.
- Spread your debt out across multiple credit cards, rather than piling it all on one.
- Show lenders that you can be responsible with both revolving (credit cards) and installment (e.g., personal loans, etc.) credit.
- Stop spending more than you earn.
- Don’t request a lower credit limit.
- If you have a delinquent account, ask your creditor if they will reage your account.
- Understand that a collection account stays on your credit report for seven years — even if you pay it off.
- Pay your bills on time.
- Immediately challenge credit card companies that claim you’ve made a late payment.
- Never exceed your credit limit.
- Respect the power of credit cards.
- Build a long and sustained history of responsible borrowing.
Photo Credit: kevindooley