James Montgomery

After credit problems or even bankruptcy, improving credit score is a goal that may seem unattainable.

If your score does not improve, you probably are going to pay more for everything that you buy on credit. How can that be? The interest rate that you pay on financed purchases, from houses to cars to jewelry, is determined most of the time from your score. The lower the score, supposedly the riskier credit you are, and the higher the rate.

Think of paying a point more on your home loan. The difference between 6 and 7 percent – one percentage point – will cost at least $50,000 more on a a $200,000 home. That is 25% of the base cost of the home. Money from your pocket straight to the mortgage company pocket.

So how can you improve your credit score? First, you still have to use credit but responsibly. There are a number of financial gurus who recommend that you become debt free and stay there. Borrowing becomes a big no – no. You can live that way but it will mean that you will have to pay cash for everything – house, car, and any other big ticket item.

There is nothing wrong with that lifestyle. In fact, if you ever plan to really retire, even at 35 if not 65, the key is reducing your monthly expenses. Pay off your house. Pay off your cars. Get your “nut” – what you spend every month – as low as possible. By reducing your expenses, you reduce the amount you need to have each month to pay your bills.

But when you need to buy a house and you don’t ever borrow money, expect that your credit score will not be a 720. Your credit score is based on how and when you borrow. So if you don’t borrow, you cannot score well.

What you can do is borrow responsibly. Use no more than three cards and pay them off each month. Borrow to establish credit.

You can do it yourself but if you are not experienced in these areas, you really should consider using a step by step course to give you the exact way to get back to a 720 score.