Need to increase your credit so you can buy a house? or a car? Are you applying for a new job where they check your score? Follow these steps to get you back on track and ahead of the game.
- You must know your monthly cash flow
Cash flow is simply knowing how much cash is coming in and out over a given time frame. In most cases, it is best to use a month time period for simplicity.
For instance, what brings cash “in” to your checking account? Income, right? Options here can also include your spouse’s income, dividends, rental properties, side businesses, or whatever brings in money.
Now, what causes money to flow “out” of your checking account? Here you’ll have all of your expenses (mortgages, rent, car loans, credit cards, food, utilities, clothing, alcohol etc.)
Really take the opportunity to study these two “flows” by looking over your bank and credit card statements for the last quarter to get an idea of what your minimum net positive cash flow is. Armed with accurate information will set you up for success. If your cash flow is negative, then you’ll either have to increase your income (side job or sell stuff) or cut some expenses immediately.
With the knowledge of your cash flow, I’d recommend downloading the debt snowball worksheet (free) and began chopping down your debt. You’ll know your cash flow so you can apply the leftover income to your debt. Decreasing your debt improves your debt to income ratio which is a major factor in calculating your score.
2. Improve your credit history
The typical solution to improving your credit history is paying your credit cards on time on a monthly basis over long periods (ie greater than 5 years). But we want something that will work a little fast, right?
This technique can improve your score as soon as the next credit reporting cycle! So in 30-45 days, if you follow the guidelines below, you can see big jumps in your score. You wont be able to do this one on your own though. You’ll need to have a family member, spouse, or close friend who has fantastic credit (>720) so they can add you to their credit card as an authorized user. Whatever credit history they have on that particular card will now show up on your credit report. Pretty cool, right? Their are some caveats though.
- Ensure there is a high limit (and a low balance)
- Ensure they’ve never had any late payments on that card
- Ensure they will continue to pay the card in a timely fashion and not over burden the card with debt
- Ensure the credit card they have will report authorized users to the credit bureaus
Reassure them you aren’t going to use the card. You just want to use their history.
If you have implemented other techniques that have worked, please let me know!
I’ll update you on the success of the above with the next credit reporting cycle. Good luck!