Spring is on the way, and that means it's time to start airing out the house and dusting every surface in sight. While you're getting your home in proper order, why not take advantage of this cleanliness-oriented mindset to remove blemishes from your credit rating?
A clean credit report is just as important as a clean house, after all. If you're ready to roll up your sleeves and go to work cleaning up your credit, these six strategies will make it shine and give your credit report that fresh, springtime feel.
Break the Problem Into Manageable Pieces
One of the biggest mistakes that people make with their debt is allowing the full extent of the problem to weigh on them until they are paralyzed in denial. Stay positive and believe that you can get your debt under control.
Why? Because you actually can. Rather than thinking of debt as one big impossible problem, break it down into bite-size pieces. Visit a non-profit debt counselor who can help you make sense of your debt and how to deal with it.
Pick One Debt and Attack It Head On
If you are carrying balances on several cards or lines of credit, choose the one with the highest interest rate and pay down as much of it as you can afford.
Why? Because paying off one debt could help your credit score. More importantly, it will get you out of the trap of paying mostly interest, reduce your overall debt and give you a sense of accomplishment. It will also get you into the good habit of making real payments as opposed to just moving debt around.
After paying off the first debt, you can apply your new good habits to eliminating the next one, and so on. Make a list of your debts in order of interest rate from highest to lowest, and pay them off in that order.
Raise Your Credit Limit
Did you know that using a small portion of your credit limits can help your credit scores? As a general rule of thumb, keeping your balances below 30 percent of your credit cards' limits could be a good idea. Paying down balances, limiting how often you use credit cards, and making early payments on your card accounts can help.
Another quick way to boost your credit score is to raise your borrowing limit. If possible, raise the limits on your credit cards and other lines of credit - but only if you can avoid using the extra credit, which will only add to your debt and render this strategy useless.
Don't Cancel Credit Cards
You may be tempted to cancel cards that are paid off or aren't being used. Sadly, this is not a good practice, because it increases your utilization rate -- the ratio between your debt and your available credit -- and could lower your score.
You should always aim for as large a gap as possible between your balance and maximum credit limit. When you cancel cards, you are lowering your overall credit limit, which only decreases this gap.
For example, if your total limit is $10,000 and you owe $3,000, you have a utilization rate of 30 percent. If you cancel a card with a limit of $2,000, your credit limit shrinks to $8,000. If your balance stays at $3,000, you are now using 37.5 percent of your available credit. Unless you're canceling the card because it has an annual fee or you tend to overspend with it, a better strategy may be to leave it in a drawer at home or cut it up but leave your account open.
Communicate with Your Creditors
When dealing with creditors, nothing is worse than dropping off the map. Remember that financial ups and downs are normal and common. Try not to think of credit repair as a personal failure, but simply as a task to be completed.
Communicate with creditors and let them know you are sincerely trying to meet your financial obligations. Sometimes it makes no difference, but in other cases, it can get you an extension on a deadline, a lower interest rate, or some other kind of break that helps keep late payments and other negative marks from hurting your credit score. Just think - a single conversation could save you hundreds of dollars down the line. Isn't that worth it?
Pay on Time
Being late on your payments is a surefire way to lower your credit score - sometimes by as much as 100 points, according to FICO. Get organized with a calendar or reminder system. The single best thing you can do to clean up your credit is to establish a spotless history of on-time payments.
This spring, clear out more than the closets - clean up your credit score! Remember that credit repair is a marathon, not a sprint. Credit repair is an opportunity for you to develop a credit report that can serve you well in the years to come. Develop a solid strategy and always be diligent in repairing your credit, and you'll quickly see the benefits of financial responsibility.