Your credit score is made up of five factors:
- Payment history (35%)
- Credit usage (30%)
- Age of accounts (15%)
- New inquiries (10%)
- Credit mixture (10%)
Improving your credit score can have a direct, positive impact on your financial future so let’s take a look at five basic tips to improve your credit rating.
Avoid further late payments
Stop the downward spiral by avoiding any further late payments. Try setting reminders for payment due-dates or, if possible, set up auto-draft.
Pay cell phone & utilities on time
Most of us don’t think of our credit score when paying our utilities or cell phone bill but paying them on time is one of the easiest contributions toward improving your credit rating.
Don’t close unused credit cards
Nearly one-third of your credit score is based on your credit utilization. For this reason, it would be prudent not to close unused credit cards as it may lower your available credit and thus, increase your credit utilization and decrease your credit score.
Settle your debts
There are a couple different approaches to settling your debt including dealing directly with each creditor or settling though a debt relief company. Either one of these approaches is better than doing nothing and will put you on a long-term path to being debt-free. Either approach will likely allow you to settle your debt for half, or even less, of your outstanding balances but a debt relief company will charge a fee.
You have the option of negotiating with your creditors about making a lump sum payment of 40-50% of your balance. If any of your accounts are too high for this to be feasible, ask about setting up a payment plan and try to focus on paying off your smallest accounts first.
After eliminating your first credit account, apply the minimum monthly payment for it to your new smallest account and repeat. This approach, known as the snowball method, is recommended by Dave Ramsey.
By eliminating one card at a time, your minimum monthly payments will slowly but surely decrease and eventually disappear.
Beware of scammers
As with all financial transactions, be careful to avoid scammers!
You should only consider doing business with reputable debt consolidation companies like National Debt Relief which is accredited by the Better Business Bureau.