There are definitely more steps to improving your credit. As you know, if I give you a huge list, it will feel overwhelming and any denial programs that you have will arise and you will immediately shut down. I’m not doing that to you. Taking action creates more action and as you take these “Mother May I” small steps forward, you will gain momentum and create more results.
For now, it’s important that you build your “I Get It Done” muscle and we do that by taking action that we will not only absolutely DO but that we will set ourselves up to WIN every time. As you join me on this journey…you are deprogramming old beliefs and habits and reprogramming with new beliefs and habits. Commit to be committed and let’s GET IT DONE!
- Payment History– The #1 most important and the highest weighted factor that determines credit score is your payment history. What is this? In simple terms, it’s making your payments and making them not only on time but ahead of time. Often, people feel that they are given a grace period and that it makes no difference if you are making your payments on the last day of the grace period. Nothing could be further from the truth as it will reflect a “slow pay” history.
- Amount Owed– This is also referred to as your “Utilization”. This is the 2nd highest weighted factor which is why we are addressing it. Think of this as a percentage. If you have a credit card and you have a total line of credit available to you of $1,000 and you owe $300 against it, your utilization rate is 30%. There are differing information as to what utilization rate you should stay under, however, I personally stay at 30% or less which is the consensus. Even if you are paying down your credit cards and meeting the minimal payments required, you are not maximizing your ability to build good credit if you have a high utilization rate. More ideas on what to do about this to come in future blogs.
- Length of Credit – This is the amount of time that you have had an open line of credit. This is you 3rdhighest weighted factor. What does this mean to you? You just got a new credit card and you are super excited because it pays you cash back on all of your purchases and it has also allowed you to transfer your balance from another card at zero percent interest for 18 months. Good deal? You bet, but don’t go running out and closing your old credit card because it has a zero balance…it’s still working for you in both the Length of Credit and by creating a lower utilization rate as all the unused line of credit is calculated against the used portion.
So here are the top 3 things you can do today:
1) Review your payment due dates and log reminders on your calendar or on your phone to ensure that the payments are made on time or ahead of time and never during the grace periods.
2) Calculate your total allowable credit on all personal lines of credit (e.g. Credit Cards, Home Equity Lines of Credit, etc.) and then calculate the amount owed on all and divide the amount owed into the amount allowed to determine your utilization rate.
3) Identify which credit card you have had the longest and if you are no longer using the card, flag it with a sticky to not close it out.
Take action on these 3 items today, no later than 48 hours. You’ve got this. You can do this and once you know what you are dealing with, you can make strides for developing healthy habits.
These recommendations are made for building your credit, not necessarily for going debt free.