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- Improve Your Credit Score
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Repairing bad credit is a bit like losing weight. It takes time to get to where you want, and there are no quick fixes. The best way to rebuild credit is to manage it responsibly over time, and the tips below can help you with just that.
How Credit Scores Works
Your credit score is calculated from the information in your credit report. This score varies between lenders and products, depending on the criteria used to assess your eligibility as a customer. Your score will determine whether or not to lend to you, how much you can borrow, and how much interest to charge you. It’s also a deciding factor in getting things like an apartment, insurance or mobile phones.
Most scoring models take into account your payment history on credit cards and loans, how much revolving credit you use regularly, how long you’ve had accounts open, the types of accounts you have, and how often you apply for new credit.
The recent information on your credit file will have the most weight, because lenders are more interested in your current financial situation. However, all your finances from the last six years will still be on record.
I recommend regularly checking your report so you can catch any fraudulent activity or mistakes. There are three main credit scoring agencies in the United States: Equifax, Experian and TransUnion. You can get your score and the full details of your credit file online. Although each agency will charge you to access their services, it’s possible to get your credit report for free through partner sites.
Improving Your Credit Score
Start by checking your credit score online. Along with a number, you’ll get information on what is affecting your score the most. These factors will pinpoint the changes you need to make in order to improve your score.
If you have negative information – like late payments, delinquencies, too many inquiries or bankruptcies – all you can do is pay your bills and wait. It takes time for bad credit scores to climb back up.
|NEGATIVE INFORMATION||STAYS ON YOUR REPORT FOR…|
|Public record items (bankruptcy)||10 years|
Find out what else you can do to get a better credit score below:
1. Pay Your Bills On Time
Increase your credit score by paying all your bills on time every month. This not only includes credit card bills and loans, but also your rent, utilities, phone bill and etc. Paying late or settling an account for less can negatively affect your credit score.
There are tools that can help you pay on time every month, like automatic payments, bank notifications and calendar reminders. Make sure you utilize these so you don’t miss a payment.
If you fall behind on any payments, bring them current as soon as you can. Although late or missed payments appear as negative information on your credit report for seven years, the impact on your credit score lessens over time. Older late payments don’t carry the same weight as more recent ones.
2. Pay Off Debt
Another important piece of data that plays a big role in your credit score is your credit utilization ratio. It’s determined by adding all your credit card balances and dividing that amount by your total credit limit. Say you typically charge about $3,000 each month and your total credit limit across all cards is $10,000. Your utilization ratio comes out to 30%.
A “good” ratio is a low one, typically 30% or less. People with the best credit scores usually have very low credit utilization ratios. This tells lenders you haven’t maxed out your credit cards and that you probably know how to manage credit well. Keep your utilization ratio low by:
- Paying off debt and keeping your credit card balances low.
- Become an authorized user on another person’s account (as long as the other person uses credit responsibly).
To pay off debt, you’ll need to stop using your credit cards. Take a look at your credit file to make a list of all your open accounts, go online or check recent statements, and determine how much you owe on each account plus the corresponding interest rate. Draw up a payment plan that puts most of your available budget for payments towards the cards with the highest interest first, while making minimum payments on your other accounts.
3. Only Apply for Credit Accounts You Need
Don’t open accounts because you want a better credit mix. In the end, it’ll probably only harm your credit score, either by creating too many hard inquiries on your credit report or accumulating debt with your newfound credit.
4. Do Not Close Unused Credit Cards
As long as they’re not costing you in annual fees, keep your unused credit cards open. It might be counterintuitive, but closing an account may increase your credit utilization ratio. When you owe the same amount but have fewer open accounts, you’ll lower your credit score.
5. Dispute Inaccuracies
Incorrect information on your credit file might not help your credit score. Verify that the accounts listed on your report are correct. If you see anything that’s not supposed to be there, dispute the information right away.
Linking a spouse, friend or family member’s credit rating to yours through a joint account could hurt your credit score if they’re not as responsible with their credit as you are.
If your credit score isn’t where you want it to be, you’re definitely not alone. Improving your score will take time, but the sooner you address your credit issues, the faster your scores will go up.
Click here to check your credit score for free.
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