How to Boost Your Credit Score

First off, let's make sure you know what your credit score means. Basically, your credit score is a measure of how risky it is to lend you money; it's a measure of risk. When you apply for a loan (credit card, car loan, house loan, etc) your score affects the terms (especially the interest rate) of the loan you are offered. Credit scores range from 300-850; a higher score means a lower interest rate and an easier time getting loans. The score to aim for to get the lowest interest rate is 760 or higher.

What makes up your credit score?
35% is your Payment history
30% is the Amounts you owe
15% is the Length of your credit history
10% is based on New credit
10% comes from the types of credit you use

Tips for responsible credit management (or How to Improve your Credit Score):

• Pay your bills on time This has the largest impact on your credit and you have complete control over it. If you mail a payment late or forgot to send it call your credit card company and let them know. If you have a good history with them they'll often waive any late fees and not ding your credit.
• Don't apply for every card you're "pre-approved" for You don't need 25 credit cards (I hope). Part of being responsible with your credit is limiting it. If you keep applying for new cards the lending world will see that as you're looking for money; if you're looking for money you may be a higher risk and it could hurt your score. A bunch of new accounts will lower your average account age and older, longer histories are what you're going for.
• So you have too many cards and you want to thin out your wallet. Don't go cancelling all your cards Part of your credit score is determined via your credit history. The longer your good history, the better. If you want to cancel cards, look at those you got most recently and start there. Look to cancel cards recently opened cards with an annual fee or the highest rates. If you have a card you got in college with an astronomical rate, but it also carries your longest history, don't cancel that one! Call the company and see if they can give you a better rate. I've done this with my first credit card and the card I have with that bank now has my lowest interest rate. They moved me to a different type of card, but kept my history in their system. That is the best of both worlds.
• Keep your debt to available credit ratio in check This ratio is your total available credit (limits on all accounts) divided by your total debt (all outstanding balances). Keep this number under 50% -- 30% or less is even better. This means that as you pay off your balances, don't automatically close the accounts! Keeping the account open, but not using it will lower your ratio. What the lending world is looking for is that you know how to not spend all the money that is available to you. That is responsible credit usage and will improve your score.
• If you've had credit issues in the past that you've worked to clear up don't forget you'll need to reestablish good credit. This means opening a new account and using it responsibly. You can start by charging only minimal amount and paying it off in full by the due date. It's not a quick fix, but over time the only way to improve your score is by responsible credit use.
• If you're in a situation where collection agencies are calling you for outstanding payments Call the original lending company (not the collection agency) and try to work out a payment plan. Before you jump to a credit counselor or consolidating service (both of which can actually hurt your credit in the short term), call the companies you owe money to. Work out a payment plan. They'd like you to pay your full bill, but if you're not currently paying anything you may have room to negotiate a lower balance. The original lender is the one with the power to help your credit. Your goal is to get the balances out of collection and the company to stop reporting the collection to the credit bureaus (once you're out of collections, of course). If the lender won't work with you and you're forced to work in the collection system you may still be able to work with them to set up a payment plan, but the collection will still show on your credit report.

It's easy to feel like you're sinking into the depths of credit troubles with no way out -- but you always have a way to fix things. It's not an overnight solution, but keep working at it and you'll see your credit score go up; and then you'll have the power to make your interest rates go down.

Funding Your Emergency

Alright people, this is going to be a quick one. You need an emergency fund.

Where is this coming from? Well, I was in an accident yesterday. Thankfully no one was hurt. But it was a frightening experience; one that reminded me of the necessity of an emergency fund.

You never know what's going to happen. Accidents are accidents because they were not intended. You can't plan for them, but you should be prepared for them. What happens if you find yourself unable to work & running low on funds? Unless you have that duck-endorsed insurance, you could be in real trouble. It is yet another reason not to spend more than you make.

Pick an amount that you know you wouldn't miss on a monthly basis, $25, $50, $100. Skip that extra cup of coffee or bring your lunch from home for a couple days, there's $25. The amount you can spare is not as important as putting it away with consistency. Open an Emigrant or ING online savings account and set it up to automatically transfer your savings from your checking account. You don't have to think about it, you don't have to do anything, and you chose an amount you can live without, so you probably won't even miss it.

The next step: Forget about that account.

Until you have an emergency where you need the money you've been saving (and the bi-annual Nordstroms sale does not count), that money doesn't exist to you. It is off limits, out of bounds, locked behind an electric fence. It is there for your own personal rainy day. It is your umbrella. We all know that when it rains, it pours; so get to saving now so when if your rainstorm should flood your life you can keep your head above water.

Want to feel really secure? Aim to have 3-6 months of your living expenses saved. If you're self-employed, double that. It may seem out of reach to have 6-12 months of expenses saved, so don't look at it as needing to save all you spend in a year. Break it down into smaller goals. Save 2 weeks' worth of expenses. Then work to a whole month. Then six weeks, eight weeks, and so on. Break it down as much as you need to get it done.

The key is to start. You have to start. Go now, open an online saving account (if you don't trust online banking open a savings account at your bank; the interest you earn won't be as high, but if that's what you need to do, do it).