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Helpful Tips for Improving Your Credit Score
Published Date : January 25, 2018
For entrepreneurs in Silicon Valley, particularly first-time founders who bootstrapped their start-up, mediocre credit scores can be a painful fact of life. Perhaps company expenses were paid with personal credit, or, in the early days, a paycheck was passed on while bills piled up at home. Educational debt can also have served to lower credit scores in the early years, prior to earning more hefty compensation packages. From buying or leasing a new car, to obtaining a home mortgage, to getting the best car insurance rates, a low credit score has costly implications and it can even plague those who’ve been financially and professionally successful.
Fortunately, time can often mitigate or even erase many of the negative aspects of your credit report, but only if you make smart choices along the way. The best place to begin is by checking your free annual credit reports, available through a consolidated service called AnnualCreditReport.com. At this site, you can request a free copy of your credit report from each of the three main consumer credit reporting agencies: Equifax, Experian, and TransUnion.
To affect positive change on your credit score, it’s important to understand the factors that influence the overall rating and arrive at a game plan to improve each component:
1. Payment History – If you miss a due date, make the payment as soon as possible because lenders typically wait until a payment is 30 days late before reporting it. The more recent the delinquency, the worse it is for your credit scores, and a skipped payment can knock more than 100 points off a good credit score.
2. Credit Utilization – People with the best credit scores use no more than 7% of their available credit, but even those who keep balances to 30% of the available credit limit will help their scores. This is calculated not just for each card, but overall, too. Even one maxed out card can have an impact.
3. Credit Mix – The credit bureaus like to see that you can handle a variety of credit products. For example, student loans, mortgages and auto loans are all installment loans with a fixed balance. Credit cards and home equity lines of credit are revolving credit. One aspect of your score involves how many of your cards have balances. Ideally, look at all of your cards on which you carry small balances and pay them off.
4. Inquiries – If you are in the process of trying to raise your credit score, do not apply for any new sources of credit. These types of “hard” inquiries into your credit, or any actual credit applications, can cause your score to drop a few points. Soft inquiries, though, such as employer reviews, self-checks, or inquiries made for the purpose of prequalifying for promotional offers do not hurt your score. Mortgage, auto and student loan scoring formulas allow for the fact that you will make multiple applications, but ultimately only take out one loan.
5. Average Age of Credit Account – Ironically, it is best to leave old accounts open, including those that you have fully paid off. Good debt – that is, debt in which you have handled well and demonstrated that you have paid properly as agreed – is actually beneficial for your overall credit profile.
Many individuals who find themselves with a lower than desired credit score have the means and ability to raise their score through a disciplined plan. If you want to shore up your credit score due to past entrepreneurial or educational burdens, your Sand Hill Wealth Manager can work with you to make a positive change.
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