5 Tips for Improving Your Credit Score
A low credit score can hold you back from getting approved for loans, an apartment, credit cards or prime interest rates While building or rebuilding your credit isn’t a quick process, it can be the difference between getting what you want or going without. Here are five 5 ways you can improve your credit score.
1. Check your credit report for errors Request a copy of your credit score report from the three major credit bureaus (Experian, Equifax and Transunion) and make sure they are correct. Everyone is entitled to receive a free copy of his or her credit report annually from each of the agencies through the Federal Trade Commission’s website or by calling 1.877.322.8228. Make sure to take the time and review the information carefully as it’s not unusual for there to be mistakes on a person’s credit report and dispute inaccurate or missing information by contacting the credit reporting agency and your lender. If there are multiple errors on your credit reports, you may want to consider working with a credit repair company to make things easier on yourself. And remember, checking your own credit report or FICO score has no impact on your credit score.
2. Pay bills on time Payment history is the single biggest factor that affects credit scores (32 percent of your VantageScore credit score and 35 percent of your FICO credit score), and late payments can stay on your credit report for seven years. If you miss a payment by 30 days or more, contact the creditor or lender immediately and arrange to pay up if you can and ask if they can consider no longer reporting the missed payment to the credit bureaus. Avoid missed payments by setting up as many of your bills to automatic pay as possible.
3. Reduce the amount of debt that you owe Your credit utilization or the balance of your debt to available credit contributes to 30% of a FICO Score’s calculation. The most effective way to improve your credit scores in this area is by paying down your revolving (credit card) debt. In fact, owing the same amount but having fewer open accounts may lower your scores. Come up with a payment plan that puts most of your payment budget towards the highest interest cards first, while maintaining minimum payments on your other accounts. Keeping your utilization rate at 30% is highly recommended. That’s $3,000 in debt on a $10,000 available limit, for example. If staying at 30% is difficult for you, there is always the possibility of having your credit limit increased as long as you have a good payment history and have improved your credit since opening the account.
4. Clear any outstanding collection accounts Collection accounts are one of the worst types of entries you can have on your credit report. Even if you have one collection account on your report, you may have a difficult time getting approved for any new credit or loans. Contacting your creditors about paying off your debt is a great way to raise your credit score. Make sure that they agree to remove the negative hit to your credit report if you repay it in full—and get it in writing.
5. Don’t Close Accounts Closing a credit card means you lose that card’s credit limit when your overall credit utilization is calculated, which can lead to a lower score. Keep the card open and use it occasionally so the issuer won’t close it.
By following the tips above you could boost your credit score and might no longer need to worry about being approved for that home, vehicle or other items you need. Improving your credit opens you up to a whole new world of purchasing power so never give up on building or rebuilding your credit.
