I am in the process of trying to improve my credit score and was wondering if you had ways I could do that…

The best way to improve a credit score is to pay off the debts, but there are a number of other issues, too.

Credit scores attempt to indicate how a consumer uses credit. More importantly, they suggest the likelihood that money loaned will get repaid according to the terms agreed upon when borrowed. Two primary situations affect the score: the recent history and the current status.

History cannot be re-written, but it can be corrected. The first step in improving credit scores is to request a credit report from each of the four agencies and review it for any possible errors. Follow their procedures to get the history corrected. Also, note that all issues eventually drop off the credit reports, so verify that ancient deficiencies get deleted.

Current status means that the payments on the loan (or credit card) are arriving by the due date. Usually, there is a grace period beyond the agreed-to date due, but some lenders require an additional fee to process payments more than a short time after it. Payments received more than 30 days after scheduled are considered late, even if they are consistent. Make sure that all creditors are reporting payments as “current,” unless they are not, in which case, getting them into current status should be a top priority.

I was told that I should not pay-off all my cards but pay them down a lot and leave a small balance on them and pay them a moderate amount each month but never to close any of them. Isthat correct?2

Carrying balances on credit cards charging interest is terrible advice.1

To get them paid off as quickly as possible, consider using the “snowball” strategy. Rank the cards by outstanding balance, listing the minimum payments required by each. Total the minimum payments. Commit to making a total payment which is larger than the minimum amount, but pay all the extra money to the card with the smallest balance. Each month do the same thing. When the lowest balance card is paid off, attack the next smallest one. The payment should include all your available funds committed to retiring the debt.1

The current amount of credit both available and used is a significant factor in the credit score. Keeping the zero-balance cards open should help your credit score. The ratio of total debt outstanding relative to the available credit used is a key scoring algorithm. However, be mindful of the unused cards’ annual fees.

When all the cards are debt-free, consider closing those with the worst terms.

Is there anything else I could do?

Contact creditors directly to discuss the agreement terms. They can agree to reduce the interest charges, waive occasional fees, and adjust the due dates and grace periods to accommodate their borrowers. They have no obligation to make changes, but on unsecured debt such as credit cards, itisto their advantage to help forego a bankruptcy filing.

Consider freezing your credit reports so that itis difficult to open new lines of credit, and itprotects your personal information ifan agency suffers a security hack. See our recent blog post for advice about freezing your credit.3

This next strategy is dangerous for people not adept managing their finances, but after liquidating all the debts, it can help the credit score.

Use a zero-balance card for monthly expenses otherwise paid by check or debit, then make one payment each month before the grace period expires. In effect, use the card but don’t pay any interest. The strategy accomplishes two favorable things: demonstrates reliability and shows continued use of credit.


1 Be cautious about Interest Free credit card offers, too. See our blog post “5 Things You Need to Know to Avoid ‘Interest Free’ Traps at https://enduringwealth.com/blog/2014/05/23/5-things-you-need-to-know-to-avoid-interest-free-traps/?geoip=1.

2 The snowball strategy ignores interest rates and assumes an aggressive attempt to pay off the debts quickly, within a few years at the most. In that scenario, slight differences in rates creates little impact.

3 “Locking the doors after everything is taken; advice about freezing your credit” https://enduringwealth.com/blog/2017/11/22/locking-doors-everything-taken-advice-freezing-credit/?geoip=1

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