As an Insurance Agent, one may encounter people who cannot qualify for a life insurance because of their credit rating. If you are a business owner and need a loan to improve your business, your credit score is key to obtain the loan and a life insurance policy to protect the debt in the event the borrower dies early.
Here I am giving you my personal, educated opinions on how to improve your credit score, these opinions do not represent legal advice or expressed recommendations.
A credit score is a number that lenders use to gauge if they will grant you credit, the higher your score the more than likely your ability to obtain financing. Along with your credit score, other determining factors include your current debt to income ratio, which means the amount of money you make in order to meet your current obligations. To determine your debt to ratio income (DTI) divided your debt by your income. Example; your total debt is 45000 and your income is 85000 your DTR= 45000/85000= 52%.
Having a debt to income ratio that is not a source of constant stress is always a good idea. The lower the DTI the more relaxed your life and it allows you to save for rainy days and retirement. In the event you need financing, lenders prefer to see a DTI lower than 36%. If you are looking to buy a home, mortgage companies prefer you have less than 28%.
If your current credit score is dipping into the lower numbers, here are some tips on how to improve it.
- Pull your credit report online: This will give you clear information on the factors that are affecting your credit score. Once you analyze it, you can start drawing a plan on the changes you need to achieve improvement of your credit score.
- Age of the accounts matters: Building your credit takes time and planning of your budget and finances. Negative reporting on your credit report such past due accounts, collections, bankruptcies, and hard inquiries when applying for loans or credit cards, remain in your report for several years.
- Delinquencies remain for seven years
- Bankruptcies may remain for 10 years
- Hard credit inquiries remain for two years.
- Take action: If you have accounts in collections, call the collection agency and negotiate a payment arrangement. Once you begin making payments, they will begin reporting that you are paying as agreed.
If you have a record longer than the maximum reporting time, you could call directly to the reporting agency and ask it to be removed on your report.
If you have credit cards that are too high and you feel that you cannot pay them, you can call the credit card company, close the credit card and initiate payment arrangements on the current balance. The outstanding balance, normally, will not accrue additional interest and you can concentrate on paying the principle. The credit card company, will need to keep reporting that you are paying as agreed on a closed credit card with outstanding balance.
If you have trouble paying a car loan due to hardship or layoff, call directly to the finance company to get a loan extension. The balance due may be added at the end of the loan if the finance company agrees. Try to avoid repossession of your vehicle because it will remain on your credit report for seven years. When companies repossess a vehicle, normally it is sold at auction for half of your financial obligation. This is a loss for the lender and for you as you will have a long term negative mark on your report in addition to the loss of your vehicle. A loan extension is a win-win situation for both parties.
In the event that you have been victim of identity theft do not wait a second and call all reporting agencies and report the issue. Do not forget to notify the social security administration, your employer, and all the parties that may be impacted by the theft of your identity. Seek help; you can reach out to an identity theft resolution company. I personally use InfoArmor because it has up to $1,000,000 identity theft insurance and they monitor any inconsistencies relating to your credit.
- Dispute Inaccuracies on your credit report: By law you have a free access to your credit report once a year every year. It is a good idea to review for inconsistencies or bad information before any damages occur.
- Do not apply for too many loans or credit cards: Having too many inquiries will have an impact on your credit score and those inquiries last for two years. Instead seek to negotiate your current debt directly with the lender or credit card company to lower your payments and help you to build your credit score.
- Apply only for credit when absolutely necessary: If you have no other avenue than, for example a debt consolidation. Before signing a contract, assess the total cost interest you will be paying vs. the debt negotiation with your current lender, this way you can figure out if the debt consolidation makes sense for you and your wallet.
- Decide to close or not close unused credit cards: The credit reports advise not to close unused credit cards because it may increase your credit utilization ratio. In my personal experience, I have closed unused credit cards and focused only on the outstanding credit to be repaid. As long I have a good payment history, my credit report has been satisfactory without any impact on my credit score.
My personal opinion is that credit is only for strictly necessary things that are very difficult to obtain otherwise. However, many people do not know that they can create their own banking opportunity by utilizing tools and strategies that could help pay your home, car, education and retirement without any consequences.
I encourage you to seek out information about financial strategies that can impact in a positive way your future and the future of your family.
If you want to learn more about how you can create your own banking opportunity, please do not hesitate to contact me with questions. Visit www.janixlife.com