One of the readers sent me the following question yesterday.
I was hoping you could do a blog on how to improve your credit after you have eliminated all debt minus mortgage. I pay no bills other than my mortgage, utilities, and car insurance. My car is paid off. I do not know how to get my credit score up though. Any help would be appreciated.
First, I want to congratulate my reader in paying off all his debt!! Not only that, it sounds like his bills are very manageable as long as the mortgage payments aren’t that high.
It is almost impossible to figure out exactly how the credit score is calculated, but thinking about what the credit score is used for will help give us some light in how to increase it.
Our credit score is basically a measure of how likely we can to pay off our debts. If we look at our credit report, we will see that all our credit lines like credit cards, mortgage payments are on there. If we think about it long enough, we can conclude that the credit score will consist of:
- Payment history
- Credit accounts (type and number of)
- Credit usage
- Length of credit history
- Credit applications (inquires)
- Bankruptcies or judgements
I can only imagine that you’ve never declared bankruptcy. Therefore, increasing your credit score will involve paying off bills in a timely manner and cut down on the number of credit cards as well as not using the available credit in full each month.
Another thing is to get 3 in 1 credit report instantly to monitor your credit! By doing so, you can dispute any incorrect information and make sure your credit score is as high as it can be!
There is no magic formula in increasing your credit score. Just make sure you cut down on borrowing and in time your credit score will rise!
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Another tip, which only works if you’ve already defaulted on an obligation, is to ask the collection agency for the original paperwork. If they can’t find it, mainly because your obligation has probably already passed through several hands, then they can’t report it.
If you’re interested in more details I wrote about it at: http://www.followsteph.com/2008/02/18/a-lesser-known-secret-tip-to-increase-your-credit-score/