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Improving Your Credit Score

Credit score. Such a love hate relationship.

We need good credit in order to borrow money, whether for business or personal reasons, but understanding credit is a whole beast of its own.

I can vividly remember looking at my credit score a few years back and it was in the very low 600's. My mortgage lender told me she was not sure we could qualify and then she looked at my husband's credit score and he was in the high 700's and let me tell you the conversation changed. His great score saved us from my bad one.

I made a commitment that day, that within five years I would be at or dang near an 800 credit score.

Well low and behold, I checked my score last week and I was sitting at 793!!!!!!!

Cue the happy dance, the excited scream and my husband thinking I had lost my mind.

Now let's be clear, I am no credit expert, so I can only share what I have found to work for me over the past couple years as I went to work on repairing my credit.

The first thing I did was figure out which of my credit cards gave me FREE access to my credit score so I could monitor it regularly without having to pull a full report all the time. For me, Capital One gave that access as part of my account, so I took advantage of it.

I do advise that you pull your full credit report at minimum once a year if not twice a year. This allows you to review it and make sure that everything on there is actually yours.

Now there are many factors that go into your credit score such as timely payments, defaulted loans, collections, debt to credit ratio, but your payment history, from what I have learned, carries the most weight. The second one is how much you owe on revolving lines in comparison to the credit you have extended on those lines. When I figured that out, some lightbulb moments happened.

The second thing I did was set up automatic payments for every debt payment I had. For my credit cards, I set this up for the minimum payment every month so that amount was being paid if nothing else. Once I got to a point where I could make more than the minimum monthly payments, I set up a second payment to whichever card was my first target to pay off first, and scheduled this one to pay 5 days before the statement period ended.

What this allowed me to do was make a payment before the statement was issued, and that meant that when my balance was reported to the credit bureaus, it was reported at a lesser balance. This reflected that my credit usage was lower, helping to give small boosts to my credit score over time.

The third thing I did was go against all the debt repayment methods that are commonly talked about. I didn't snowball. I didn't focus on the smallest debt first.

I focused on the debt that was costing me the most in terms of interest and cash flow.

I used what is called a Cash Flow Index (CFI) to determine which debt I wanted to target first. This method specifically focuses on the monthly payment compared to balance of debt. Specifically it targets the debt that is sucking the most of your monthly cash so you can try to free up cash quicker.

The formula is pretty simple:

Loan Balance / Monthly Payment = CFI Score

Anything with a CFI score of 100+ was not at all a priority for me to pay off.

Those with a CFI score of 50-100 were secondary priorities but those with a score under 50 were my first priorities to pay off. This is because those were the debts costing me the most cash each month.

By using these three steps, over the course of three years, I boosted my score over 180 points!

But, it all started with a commitment to do the work it would take, and honor the discipline of putting my money where my goals where... literally.

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