Like never before, increasing your credit score is imperative to purchasing money at lower interest rates if your goal is to establish credit or increase your credit lines.In general,
·A credit score below 620 is considered high risk – Grade D;
·A credit score of 620 - 660 is considered below average – Grade D+;
·A credit score of 660 - 760 is considered, okay, Grade C +and;
·Credit scores above 760 you can purchase money very cheap. Grade B+
(Please note that I have adjusted the definitions of these credit grades to account for the change in recent banking trends and a down economy.Many lending institutions have made similar adjustments.)
If your credit score is below 500 and not higher than 760, listed below are a few proven ways to increase your FICO score, quickly.
FICO = Fair Isaac Corporation (A public company that provides analytics and decision making solutions that help financial services companies make complex, high-volume decisions based on consumer borrowing, spending and repayment of money.)
The objective of a financial institution is to determine if you are a credit risk and, if so, to what extent.High credit risk equals high interest rates! Listed below are a few examples in each credit category to help you understand how your behavior with money affects your ability to borrow, save, and establish good money habits.
Joe’s credit limit is $1500.00 and he has used $1450 of his credit line.Joe has maxed out his credit card and is paying a very high interest rate.Joe can only afford to pay the minimum amount each month on his credit card. He will take a very long time to pay the debt off and will end up paying a lot more interest than $1500 to the bank.Joe has missed several payments and has paid a lot in late fees, already. Joe makes $45,000.He has no additional income. Joe’s goal is to purchase a car and a home. Joe’s credit score is 620.
The best way for Joe to increase his credit score is to:
·Joe should pay down the one credit card he has to $500.
·Joe should never spend more than 30% of ($450) of his credit line.
·When the credit card comes in the mail, Joe should pay immediately; ahead of time.
·Joe should pay more than the minimum bill due.
·Joe would like to purchase a nice car which will entail getting a loan.Instead, Joe should save $5,000 and purchase the car cash.
·Joe should continue to pay his bills on time (including his utilities) over an extended period of time.
·Joe should not apply for additional credit, but instead, save, save, save.
·Joe’s credit score should increase from 620 to 670 within one year.
A 660 credit score is considered a “C” at many banking institutions, which means you have an average payment history. This score will allow you to purchase money, but will not buy you a low interest rate compared to a higher score.Joe would benefit from meeting with a Financial Advisor to determine how he can position himself to:
·Make more money
·Save more money
·Establish a plan to achieve financial independence.
Sue’s credit limit is $10,000 and she has used $5000 of her credit line. Sue has several other credit cards that she is above the half-mark in spending patterns. She has never missed a payment and sometimes she will pay more than the minimum balance on multiple accounts, but then the next month she will spend the same amount or more in purchases and pay the minimum amount on her credit cards the following month. Sue loves to eat out and party. She’s not a saver.She can’t seem to get ahead! Sue has a degree in Fashion Design and makes $70,000 per year and she owes $70,000.00 in student loans of which she must start paying back next month at $320.00per month. She wants to purchase a home, but can’t figure out how to do so owing so much in student loans. Sue’s credit score is 700 which is a C+.
The best way for Sue to increase her credit score is to:
·Continue to pay bills on time, but switch to paying bills in advance of them being due and pay larger amounts than requested particularly on the student loans.
·Get on a plan to pay bills down to 20% of her credit lines.
·Stop stealing from Jake to pay Paul.Meet with a Financial Advisor to get on a budget and stick to it so that she is not paying the student loans for the next 25 years for a Bachelor degree.
·Sue should not apply for any additional credit.
Sue’s credit score should increase from 700 to 780 a B Grade in no time.If Sue can earn additional income her debt to income ratio will decrease and her credit score will increase higher than 780, which will allow her to take advantage of the lowest interest rates banking has to offer,Sue will be able to act on her dream to purchase an affordable home at the lowest interest rate possible.
Alexis has a line of credit on her home for $50,000, her mortgage is $1000.00 per month and she has never been late paying her mortgage.She has had her mortgage for five years.She has a car note for $32,000 and is driving around in that new SUV.Alexis has $80,000 in equity in her home.She only owes 30% of debt on any one credit card.(She has three credit cards.) She pays all of her bills as soon as they hit her mailbox and she pays the entire debt owed each month.She makes $120,000 per year and she has no additional income.Alexis takes one cruise a year and one other additional trip, wherever, whenever.She has no savings account. Her credit score is 780 a B+ and she recently applied for a business loan and was declined due to not having enough equity or experience to open a Tax Service Franchise.She needs a $250,000.
The best way for Diane to get a business loan is:
Although Alexis is educated, has $80,000 of equity in her home and has a good paying job, the bank still does not feel comfortable lending her $250,000.The best strategy for Alexis is to:
·Meet with a Financial Advisor to discuss her relationship with money and why she has not saved.
·Consider starting the Tax Servicefrom her home office and borrow less money;
·Use the line of credit on her home for $50k
·Network amongst her friends and family to see how much of the $250k she can raise on her own;
·Build a sound relationship with a smaller bank who does community base lending;
·Shop around for a business partner that has experience and money;
How Financial Institutions Determine Your Credit Worthiness
·The length of time you have had credit. Positive effect on your credit the older your credit is.
·How you pay your bills; on time, before time, or late? Pay before the bill is owed will yield a positive effect on your credit.Your credit can increase by 25-75 points in one year.
·How much do you pay each month; the minimum, 20% more, 50%more or greater? The minimum – no effect on credit
20% or more – positive effect on credit 50% or more – credit number will increase significantly.
·How many other credit cards do you have?Too many, or a reasonable amount given your income and equity? Too many – This will drag you credit down.Even if you do positive things to increase your credit, your score may not move.
·A reasonable amount of credit compared to your income will have a positive effect on your credit score.
·The types of credit you have; mortgage, installment, revolving, other types, and how often have you applied for credit. You should have credit in each category.First Time home buyers or people rebuilding credit should have credit in two of the three categories.