There are ways to improve your credit score if you are having trouble getting approved for credit cards or loans, or if you aren’t getting favorable rates for financing.
Once improved, many things in your life could change, from your mortgage interest rate to even your cellphone terms.
It will take some time to increase your credit score, but it is definitely worth the extra effort.
There are many things you can do when you are trying to build up good credit so you can reap the rewards that come with having a good credit score.
1- Make Sure Your Credit Reports Are Accurate
Credit reports can and often do have errors on them. A study found that 1 in 5 consumers had some type of error on at least one of their three credit reports. A follow-up study done in 2015 found that people that reported an unresolved error on at least one of their reports believe there are still further inaccuracies.
It is extremely important to verify that all information is accurate. If there is an error on your credit report, your credit score will also reflect that error.
Checking your credit reports from each of the three major credit reporting agencies is easy to do. Everyone is entitled to receive a free copy from each of the three every year as a result of the Fair Credit Reporting Act.
To access these reports, just go to AnnualCreditReport.com, which is the site that is run by the major bureaus.
You should ask yourself these quick questions in your quest to find any potential errors:
- Is my personal information correct? (Don’t forget to check your Social Security number, full name, birthdate, and address.)
- Are all of my credit accounts being reported?
- Are any payments that I made on time showing up as either late or missed payments?
- Do I recognize all of these accounts and applications for credit?
- Are there any decades-old items still showing up on my report?
It’s helpful to go through your credit reports with a highlighter and to highlight any inconsistencies. Remember that while a credit report from one bureau may include an error, another one may not.
This is why checking all three of your credit reports for errors is so important. You may find inaccuracies on your credit reports. That’s why you need to follow the next step for improving your credit.
2- Pinpoint What You Need to Improve Your Credit Score
The fact that there is an error on your credit report doesn’t mean that this is what is causing your bad credit. For example, if your name is misspelled in the personal information section, that probably isn’t leading to any errors in your credit score.
There are quite a few possible reasons why those mistakes are showing up:
- A thief has stolen your identity and is abusing your credit.
- Even though the statute of limitations has passed in your state, a collections account from a number of years ago is still being reported.
- Your ex did not pay a bill, and now you have to deal with the consequences.
- Even though you defaulted on only one loan, it’s now showing up as multiple defaults because it’s been sold to debt collectors.
- Your credit information has been mixed up with someone else who has a similar name.
If you have a bad credit score but your credit report is accurate, it’s important that you understand why.
Below are the major credit scoring factors as well as how each one can impact your credit score:
When there is a history of making late payments, creditors will see you as a big risk. This is the most likely factor that could be causing your bad credit score.
Lenders want to verify that you can handle different types of credit. If you only have one type, such as credit cards, this may be what is keeping your score from rising.
Amount of Debt
Debt contributes 30% to a FICO score and can be easier to take care of than payment history. If you have maxed out credit cards, creditors may worry whether you are really able to take on more credit.
History of Credit Applications
If, during the last month, you applied for a dozen new credit cards, creditors will begin to wonder why. They will be concerned that you’re financially overextended.
Age of Accounts
If credit and borrowing are new for you, there probably isn’t a lot of information to go on. You may just need to wait awhile before you see your credit score improve.
3 – Fix Your Late Payments
Although it may seem like a good idea to close accounts with a number of missed payments, that won’t make those missed payments disappear. Just get back on the right track by setting up payment due date alerts with all your loans and credit cards, and begin to get organized. You can change payment due dates fairly easily on your lender’s website, so just make sure they will fit your pay schedule.
If you ask, your credit card issuer or lender just may forgive that late payment. Maybe the check really did get lost in the mail. Credit card companies are usually fairly forgiving when you have a track record of making your payments on time.
4 – Build a Strong Credit Age
There’s not much you can do right away if you have a short credit history. You could ask someone to add you as an authorized user, but you may have a hard time finding someone who willing to do so this.
Your only other option is to wait it out and leave your accounts open.
5 – Clear Up Any Collection Accounts
If there is a debt collector listed on your credit report, contact them to see if they’d be willing to stop reporting the debt to the credit bureaus if you pay in full right no. This technically violates some of the collectors’ agreements with the credit bureaus, but it certainly doesn’t hurt to try.
Make sure to get their promise in writing, though, before you make a payment. If you don’t recognize the debt or it seems inaccurate, you should dispute it with all the credit bureaus. If it’s removed, you could see your credit score improve very quickly.
6 – Don’t Let Old Mistakes Haunt You
You probably want to know when the credit score misery will end. How long will it take?
Although your credit score takes the biggest hit when something first hits it, the impact will decrease over time and will eventually disappear from your credit report because of the federal laws that limit the amount of time that it can impact you.
If you see something that shouldn’t be on your report, make sure to dispute it with the credit bureaus. You’ll probably see your credit score increase when the item is removed.
7 – Get a Credit Card
Your scores could be taking a hit if you’ve never had a credit card before. Remember that account mix factor that we mentioned earlier? If your credit score is fair or better, there are a lot of credit card options you can choose from.
Be careful to make on-time payments. A new credit card account with a bad payment history will not help but will instead hurt your credit scores.
8 – Open a Secured Credit Card
With a secured credit card, you make a deposit into a checking account that then “secures” the line of credit that the bank or lender is offering you. When you put $200 in it, you get a line of credit for $200 for example.
Even with bad credit, banks will give you this type of card, and when you add a new account with a positive payment history, this will go a long way toward showing creditors that your feet are back on solid ground.
9 – Stop applying for stuff!
Although those discounts seemed worth it at the time, your credit score will be affected for applying even if you don’t get approved.
This hard inquiry will impact your credit score for a full year, and although your score will start improving almost immediately, it won’t truly disappear until you reach that 12-month mark. The hit is small at around 5 points, but if you are hovering between credit score tiers or are applying for lots of credit offers all in a short period of time, you can do a lot of damage to your credit score.
10 – Fix your credit utilization ratio
When your credit card balances are more than 30% of your limits every month, your score will suffer even if they are paid in full by the due date.
Your current statement balance is likely what’s being reported to the credit bureaus, so watch those balances. Think about pre-paying some of the balance when you know you’ll be above that 30% mark for a particular month.
If you’re consistently going over the 30% mark, you can always ask your credit card issuer for a credit limit increase.
If your credit score has risen since you first applied and you have a good payment history, they will probably consider upping your limit, and this will give you more wiggle room. You could always open up a new credit card as well to increase your overall limit.