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How To Boost Your Credit Score

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How to Improve Your Credit Score

Credit scores are very important in the United States, as a good credit score is often required to rent a property, lease a car, take out a mortgage or receive other types of loans. Read on to understand exactly what a credit score is, what affects a credit score, how to avoid credit score pitfalls and how to improve your existing credit score.

What is a Credit Score?

Credit scores are based on your credit history, calculated by credit bureaus such as Experian, TransUnion and Equifax. These bureaus calculate your credit score based on how much credit you have used and how quickly you have repaid the credit you’ve taken out.

Good credit scores these days are essentially anything above 700, while having a score beneath 700 has recently been deemed as unsatisfactory and could even lead you to being rejected from obtaining certain loans or additional credit cards.

What Affects Your Credit Score?

Your credit card score is ultimately determined by how well and how frequently you make repayments on your credit cards or other debt obligations. Paying your rent on time, making car payments or mortgage payments, paying the electricity bill, water bill, tv and internet bill and other similar activities can all affect your credit score.

Here’s a breakdown of just a few of the many elements that determine your credit score:

  • Your Payment History – If you have a habit of letting months go by without making any repayments to your credit card, then your credit score will be nowhere near 700.
  • Only Paying Minimum Payments – Making a minimum payment to your credit card won’t affect your credit card as much as not paying anything at all, but if you continue to only make minimum payments this will eventually negatively affect your credit score.
  • Maxing Out Your Credit Cards – The difference between what you owe on your credit card and your credit card limit plays a big part in how your credit card score is calculated. If you have maxed out a card, or multiple cards, this will reflect poorly on your score, whereas if you owe very little on all of your cards, this will improve your credit score.
  • Making Late Payments – A recent study by from Fair Isaac, which developed FICO scores, reports that being 30 days late on a mortgage payment affects your credit score by dropping it somewhere between 40 and 110 points. Being late 90 days was reported to drop credit scores between 70 and 135 points.
  • Length of Credit History – How long you have owned your credit cards also affects your score, as people with the highest scores have often maintained a regular repayment scheme on their credit cards for at least five years. Even people who manage their credit card well may have an average or even below average credit score if they have only had a credit card for a year or so.
  • Declaring Bankruptcy – Declaring bankruptcy can negatively affect your credit score for years to come. Counter-intuitively, bankruptcies have a greater impact on people who previously had a great credit score than they do on those with poor credit scores. Depending on which Chapter you file, a bankruptcy virtually ruins your credit for years to come (7 years for Chapter 13, 10 years for Chapter 11 or Chapter 7). The same study noted above by Fair Isaac reported that bankruptcy can drop your credit score somewhere between 130-240 points, which is a serious hit that should be avoided at all costs.
  • Foreclosures, Short Sales & Deeds-in-lieu – Foreclosures, short sales, and deeds-in-lieu certainly aren’t good for your credit score, but recent reports show them to be slightly less negative than bankruptcies. Filing for foreclosure is likely to decrease your credit score somewhere between 85-160 points.

How Do You Improve Your Credit Score?

A bad credit score causes significant problems when trying to buy a house, rent a property, or finance a major purchase, but fortunately there are many ways to improve your credit score. Here are just a few:

Make Payments Regularly and On Time

Avoid late fees, interest charges and other penalties by always aiming to make your credit card repayments on a regular basis and on time. This is the quickest way to improve your credit score. This can be easier said than done, especially if you earn a low income or simply don’t have a lot of cash lying around, but the quicker you can pay off your debts, the faster your credit score will be restored to a healthy number.

Have Multiple Credit Cards, Each with Low Balances

To avoid maxing out your credit card, which can be extremely damaging to your credit score, take out multiple credit cards, each of which you maintain a low balance on. Paying off these cards individually and on time will help you to maintain a good credit score and establish a solid credit history.

Stop Putting as Much on Your Card

In order to maintain a healthy credit history, you will still need to make some charges to your card, but try to limit how much you put on it. Remember that decreasing the gap between how much you owe and your credit card’s limit will negatively affect your score, since your credit usage ratio is a major determining factor. Try to only put essentials on your credit card, and pay for everything else with cash, debit card or by check.

Take Out an Installment Loan

How you manage an installment loan, such as an auto title loan, is another way in which credit bureaus will analyze your credit history. If you take out an installment loan and make regular repayments both on time and for the full amounts owed, then your credit score is likely to improve. Proving that you can effectively manage a credit card and an installment loan shows creditors that you are responsible with loans and are a reliable person worthy of being provided with additional credit.

Contact Your Creditors

If all else fails, you may need to contact your creditors to ask them to reduce your debt obligations. If you’re unable to pay off your bills and are worried about how this is affecting your card score, you can contact your creditors directly to see if some kind of arrangement can be made to consolidate your debt or even reduce the amount that you owe.

Sometimes lenders, and especially credit card companies, will suspend interest for a couple of months if they believe that you actually can’t pay them back, while others may offer repayment plans that are more manageable and realistic for your current income levels. Contacting creditors is never fun, but in some tough situations, it does become an absolute necessity.

Major Credit Score Pitfalls to Avoid

To protect your credit score, be sure to avoid some of the following pitfalls. While these aren’t all heavily publicized, nor as damaging as the problems we outlined in the section about what determines your credit score, the following activities all have the potential to damage your credit score:

Treating Your Credit Card as Money

Credit isn’t the same thing as money and it really isn’t supposed to be used in the same way as cold, hard cash. Credit should be paid back as quickly as possible to prove that you are using it responsibly, and to avoid having too much interest tacked on to whatever you’ve spent.

When you use your credit cards, keep in mind that you will have to make repayments for whatever you’ve spent, plus interest. Spend carefully, don’t neglect to pay your bills on time, and monitor your credit card statements like a hawk to prevent your healthy credit score from being damaged.

Applying for another Credit Card, Once You’ve Maxed out Others

It’s true that if you have multiple credit cards this can help boost your credit score, but only if you are using them responsibly. If you pay each of them off regularly, and maintain low balances, then this is definitely a plus for your score, but doing anything other than that could lead to credit score disasters.

If you have maxed out your credit cards, try to avoid the temptation of taking out another one and instead cut back your spending, sell some personal items, and do other things to get out of debt before using any additional credit.

This may not help improve your credit score, but doing otherwise could cause significant damage to it. Creditors (lenders) do not want to give money to people who are borrowing from one group to pay back another, as that risky type of behavior is likely to lead to financial ruin. For your credit score’s sake always try to pay off maxed out cards before opening new ones.

Closing a Credit Card Account if Debt is Owed

If you owe money on a credit card, your debt isn’t going to be erased by simply closing your account. In fact, debt collectors will be hounding you for repayments even more aggressively than ever before. To get rid of your credit card debt, you’ll either have to pay it off or declare bankruptcy. Paying off your credit card will help raise your credit score, but doing anything otherwise (and especially declaring bankruptcy) will almost certainly send your score plummeting.

Closing Thoughts

You can improve your credit score by following the various tips outlined above, but remember that it’s a lengthy process. Demonstrating that you’re a responsible user of credit takes time, determination, and dedication. Pay down your debt, do not open new lines of credit, and do your best to avoid using your credit cards unless you can’t avoid it, and you’ll be on the path to having a proper credit score in no time.

If you find yourself in an emergency situation with your back against the proverbial wall, and no way to come up with the money needed to pay for your bills, then consider taking an option of last resort like calling Car Capital Financial to discuss the possibility of taking out a car title loan. We can provide you with the liquidity you need to get out of a short-term crisis, without causing you long-term financial distress. Title loans are issued based on your ability to repay the loan.

To secure your financial future, call us now at 1-888-500-9887.

Advantages & Disadvantages of Credit Cards

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The Pros and Cons of Having a Credit Card

Chances are you either have a credit card (perhaps you even have several) or that you have had one at some point in your life. Credit card ownership is extremely common, since the cards provide a great way to build credit, but can also be extremely useful in case of financial emergencies.

However, credit cards can also come with a high price tag, most obviously in terms of the high interest rates they charge for late payments. As with all things, there are definite advantages and disadvantages to credit card ownership.

Before you consider taking out a credit card, read over the following pros and cons so that you can make the best financial decision possible:

Advantages of Credit Cards:

Builds a Credit History

In order to buy a house or even a car, you usually need to have a credit history. Credit cards are one of the simplest ways to achieve this. Having a credit card that you pay off regularly allows you to build a great credit score and a solid credit history. This will make taking out a mortgage, a loan to buy a car or renting a property much more easily achievable.

Less Hassle than a Conventional Bank Loan

Using your credit card is essentially the same thing as taking out a loan. As a borrower, you are using ‘credit’ to make purchases and payments which you will have to repay later on. The main advantage of using a credit card instead of a conventional loan is that it can be used for every day purchases and financial activities, and that you don’t have to continue reapplying for credit each time that you need more of it, like you would with a traditional loan. Regular loans can take weeks to be approved and generally involve a huge amount of paperwork, whereas credit cards can often be used on the same day of activation. Credit cards are more efficient, easier, and faster than traditional loans, though they aren’t necessarily used for the same types of financial transactions either.

Great for Covering Emergencies

All of us have to deal with expensive emergencies at one time or another, whether they come in the form of unexpected car maintenance or medical problems. The best way to prepare for such emergencies is to create a financial safety net, and having a credit card is perhaps one of the most straight forward ways that you can protect yourself from these types of financial pitfalls. Although you will have to pay off your credit charges eventually, using it for emergencies will allow you to preserve your savings and give you the chance to pay off your debt gradually rather than having to pay for everything up front (which many people simply can’t afford to do).

Access to Valuable Rewards

Most credit card companies provide some kind of reward scheme that their customers can sign up to participate in. The more that is spent on the credit card, the more rewards are granted. Typically these rewards include restaurant certificates, travel discounts, concert tickets, airline miles or other benefits. One of the many bonuses of having a credit card, reward points can help you save money on your next night out or major vacation.

Better Protection Against Fraud

As a credit card owner, you will have much better legal protection against fraud than you would get from a simple debit card. It can be difficult to legally establish stolen money from checking accounts, whereas with credit cards it is much easier to track down and find the culprits. This makes dealing with identity theft and banking fraud a lot simpler. When something happens to your credit card, you are virtually guaranteed to have the issue resolved and your credit balance restored. On the whole, credit card banking can be a lot safer method than solely relying on your checking and savings accounts.

Disadvantages of Credit Cards:

Credit Card Interest Rates

Credit card companies make enormous profits by lending to customers who are not able to make their monthly repayment, and who then are forced to pay extremely high interest rates. Although interest rates can start off small, the longer you fail to repay your credit card balance off, the higher the interest charges will gather. Interest compounds as well, creating more debt for you by the day, so unless you’re careful about it, you could find yourself quickly facing a staggering debt. One of the biggest disadvantages of having credit card debt is that the interest rates can leave you in the red if you’re not very careful from day one.

Risking Your Credit Score Rating

Although you need to use credit to establish a credit history that will allow you access to bigger loans for larger purchases, you also risk damaging your credit score when taking out a credit card. Keep in mind that poor credit can sometimes be even worse than no credit at all. A good credit score rating is very important for buying property, taking out a lease and sometimes even getting a job. Taking out a credit card which you don’t manage properly can get your credit score quickly crushed, so be sure that you avoid missing payments or you could significantly harm your long-term ability to qualify for larger loans.

Promoting Irresponsible Spending

In many ways, credit cards promote unhealthy and irresponsible spending. Many credit card users make the mistake of relying too heavily on their card and ignoring the fact that they need to make regular repayments to avoid a damaged credit score and huge interest rates. Credit card debt can lead to bankruptcy and has unfortunately led many Americans to lose everything, especially since the recession began. A credit card should ideally only be used for items that the borrower knows they will be able to repay, but many card users over spend, driving themselves into debt that they can’t possibly get out from under.

Hidden Penalty Fees

Very few credit card users read the fine print when they take out a card, and are in turn often surprised when they are hit by ‘unexpected’ fees. Credit card companies are notorious for charging fees for virtually anything and everything that you could possibly do, and for charging unexpected penalty fees for late payments. Credit card companies make the vast majority of their money by charging high interest rates, but they also do quite a bit of business on fees and other penalties that most credit card owners never thought they’d have to pay. Receiving an unexpected charge can be a nasty, expensive shock, but sometimes the credit card user’s only option is to pay it off and move on.

Increased Chance of Identity Theft

It’s true that you are well protected by your credit card company if credit card fraud or identity theft is committed against you, but this is only because there is such a high chance of it occurring. These criminal acts are relatively common occurrences for credit card users, and although you will more than likely be protected from it should it occur, that doesn’t mean it isn’t a huge hassle and inconvenience. Identity theft can involve losses of tens of thousands of dollars which sometimes takes months to rectify, leaving you in a tight position during the meantime. A definite disadvantage to owning a credit card, this is often one of the central reasons people use to not have one.

Summary Thoughts

Ultimately, it’s up to you whether or not you take out and use a credit card. Remember that they come with advantages and disadvantages, some so damaging that they could lead to complete financial ruin. Before taking out a credit card of your own, make sure to consider the pros and cons, and if you do take one out, please use it with caution.

About Car Capital Financial

For immediate financial assistance, call Car Capital Financial today. We’ve provided car title loans in Southern California for over 17 years, and currently work in San Diego, Los Angeles, Riverside and Orange County.

We do not need to complete credit checks, so you can get funds from us no matter how poor your credit score might be. Title loans are issued based on your ability to repay the loan. Find out how a car title loan can save you from financial disaster by calling us now at 1-888-500-9887.