7 Ways to Improve Your Credit Score
Everyone that is concerned about their finances will definitely care about what their credit score is. It has become even more important days considering the constant rise in interest rate. This makes it necessary for you to always check your credit score to be sure it is in the right number, as this will help you live a healthy financial life.
With a good credit score, you can qualify for lower interest rates on everything from credit cards and personal loans to student loans and mortgages. Getting a lower rate means lower monthly payments and better monthly cash flow.
What if you discover that your credit score is not in the right condition and it needs improvement? The hardest part of getting to work on your credit score is often just knowing where to start. The following steps can help you begin the process. The sooner you start the better. Improving your score takes time and patience.
- 7 Ways to Improve Your Credit Score
- How Can I Raise my Credit Score by 100 Points in 30 Days?
- What Are 10 Things You Can do to Improve Your Credit Score?
- How do I Wipe my Credit Clean?
7 Ways to Improve Your Credit Score
Your credit score is meant to tell lenders whether you are a high or low-risk borrower. Both FICO and VantageScore (the score developed by the three major credit bureaus — Experian, TransUnion, and Equifax) will range from 300 to 850. A score of 700 is considered “good.” The better your credit score, the better interest rates and terms you’ll be offered by lenders.
1. Pay your bills on time
According to Experian, payment history is the most influential factor for both your FICO and VantageScore. From a lender’s perspective, established history of timely payments is a good indicator you’ll handle future debts responsibly, too.
“You want to avoid things like late payments, defaults, repossessions, foreclosures, and third-party collections,” says John Ulzheimer, credit expert, formerly of FICO and Equifax. “And filing bankruptcy is a horrible idea. Anything that would indicate non-performance of liability is going to harm your credit score.”
2. Keep your credit utilization rate low
Weigh your balances relative to your credit limit to ensure you’re not using too much available credit, a practice that can indicate risk.
Ulzheimer recommends trying to maintain a utilization rate of 10%. “The higher that ratio, the fewer points you’re going to earn in that category and your scores are absolutely going to suffer,” he says. “In fact, people who have the highest average FICO scores have a utilization of 7%.”
The date your credit card provider reports to the credit bureaus may also impact your utilization rate.
Ulzheimer points out that FICO’s scoring systems don’t differentiate between those who pay in full each month and those who carry a balance. Your utilization rate at the time your issuer reports is what’s used for your score. VantageScore, though, does consider whether you pay in full or carry your balance month to month.
If you struggle with high balances and mounting interest payments on your cards, consider consolidating with a 0% introductory rate balance transfer credit card, but make sure you know when the rate will increase and by how much.
3. Leave old accounts open
Once you finally get rid of student debt or pay off your auto loan, you may be impatient to get any trace of it wiped from your report.
But as long as your payments were timely and complete, those debt records may actually help your credit score. The same is true for your credit card accounts.
“An account that’s paid in full is a good thing; however, closing an account isn’t something that consumers should automatically do in the hopes that it will positively impact their credit score,” says Nancy Bistritz-Balkan, vice president of communications and consumer education at Equifax. “Having an account with a long history and solid track record of paying bills on time, every time, are the types of responsible habits lenders and creditors look for.”
Closing a credit card account can actually lower your credit score, as you will now have a lower maximum credit limit. If you’re still carrying balances on other cards or loans, your utilization ratio will go up. You’re better off keeping the card with a $0 balance.
Any bad debts that can impact your score negatively are automatically removed over time. According to Ulzheimer, bankruptcies can stay on your credit report for no longer than 10 years, while late payments and delinquencies such as collections, repossessions, foreclosures and settlements stay on your report for seven years.
4. Take advantage of score-boosting programs
The number of accounts and the average age of your accounts are both important factors in your credit score, which can leave those with limited credit history at a disadvantage.
Experian Boost and UltraFICO are programs that allow consumers to boost a thin credit profile with other financial information.
After opting in to Experian Boost, you can connect your online banking data and allow the credit bureau to add telecommunications and utility payment histories to your report. UltraFICO allows you to give permission for your banking data, like checking and savings accounts, to be considered alongside your report when calculating your score.
5. Only apply for credit you need
Every time you apply for a new line of credit, a hard inquiry is pulled on your report. This type of inquiry lowers your score temporarily. Applying just to see if you get approved or because you received a pre-qualified offer of credit is not a good idea.
If it’s a single hard credit pull, the drop will be slight. However, a string of hard inquiries could signal to lenders that you are taking on too much debt. The effects of a hard credit pull on your score, according to a representative of TransUnion, can last up to 12 months.
If you do need to apply for new credit, research your likelihood of approval to ensure you’re a good candidate before applying. If possible, get a pre-approval or pre-qualification, as in many instances these result in a soft rather than hard credit pull. Soft pulls don’t affect your credit score You don’t want to risk lowering your score for a denied application.
You should also refrain from applying for several credit cards within a short time frame, or before taking out a large loan like a mortgage.
When you shop for a mortgage, auto, or personal loan, you can keep hard inquiries to a minimum by making rate comparisons within a short time period. Applications for the same type of loan within a designated time frame will only appear as a single hard inquiry. According to FICO, this span can vary from 14 to 45 days.
6. Be patient
You won’t drastically improve your credit score overnight. The best way to achieve an excellent score is to develop good long-term credit habits.
According to Ulzheimer, two influential factors that go into your score are the average age of information and the oldest account on your report.
“You’re really going to need to have credit for a couple of decades before you max out those categories,” Ulzheimer says. “It takes a really, really long time to improve a bad score and it takes a really short amount of time to trash a good score.”
Establish good habits, like paying your balances on time, keeping a low utilization rate, and applying for credit only when you need it, and you should see those practices reflected in your score over time.
7. Monitor your credit
When you view your own credit, a soft inquiry is pulled, which doesn’t affect your credit the way hard inquiries do.
Monitoring your score’s fluctuations every few months can help you understand how well you’re managing your credit and whether you should make any changes. However, you shouldn’t base any financial decision you make solely on your credit score.
“I wouldn’t recommend hanging every decision on a credit score, but hanging every decision on what matters,” says Jeff Richardson, spokesperson for VantageScore. “Focusing on your financial health and your family’s health is priority number one.”
How Can I Raise my Credit Score by 100 Points in 30 Days?
As we have mentioned above, Your credit score affects everything from the interest rate you’ll pay on an auto loan to whether you’ll be hired for certain jobs, so it’s understandable if you’re wondering how to raise your credit score quickly.
While there are no shortcuts to building up a solid credit history and score, there are some steps you can take that can provide you with a quick boost in a short amount of time. In fact, some consumers may even see their credit scores rise as much as 100 points in 30 days.
1. Get a copy of your credit report
The first thing you need to do is get a copy of your credit report from all three major credit bureaus. You can get your free report once a year on the Government website www.annualcreditreport.com.
2. Identify the negative accounts
Now that you have your credit report go through it and highlight accounts with a negative status. Highlight any late payments, collection accounts, or any other negative information. Make sure your personal information is correct, including your address, employer, and phone number.
Items to focus on
- Collection accounts
- Late payments
- Credit inquiries
3. Dispute the negative items with the credit bureaus
You can dispute anything on your credit report you believe is inaccurate. The credit bureau will launch an investigation and contact the creditor to verify the account, the creditor has 30 days to send sufficient documentation to the credit bureau or they are required by law, to remove it.
There are three ways to dispute accounts on your credit report:
- Online – Create an account with each credit bureau’s website to get started. Once you have an account, you will view your report and dispute any negative items online.
- By phone – You can call each credit bureau and speak to a live person. Make sure you have your highlighted credit report with you. Just go through each negative item and let them know you would like to dispute it.
- By mail, you can send a letter to each credit bureau disputing the items on your report. The downside to this method is the mail time it takes to send and receive your investigation results by mail.
4. Dispute Credit Inquiries
Credit inquiries will affect your credit score for 12 months. But, you can dispute hard inquiries on your credit profile and have them removed, I wouldn’t try this until you have disputed more important account information first.
Call the credit bureaus to dispute inquiries. The creditor has to verify you authorized them to pull your credit. Inquires aren’t removed often, but I have seen some removed from credit reports before, so it’s worth a shot.
5. Pay down credit card balances
Your credit utilization ratio is the amount of available credit you’re using and it accounts for 30% of your overall fico score. The lower your balances are, the higher your score will be. Only your payment history has a bigger impact (35%). If you’re carrying a lot of credit card debt then your credit rating is suffering. Try to pay your card balances down to less than 25% of their credit limits.
Get a secured credit card if you don’t have one
If you don’t have a credit card, you will need to get one or two to help improve your score. A secured credit card works similarly to an unsecured credit card only they require a deposit equal to the credit limit.
Wait to get a secured card until after you have followed these steps and have waited 30 days. Your credit scores could improve enough for you to be approved for an unsecured credit card.
6. Do not pay your accounts in collections
If a collection agency will not remove the account from your credit report, don’t pay it! Dispute it! A collection is a collection. It doesn’t help your score AT ALL to have a bunch of collections on your report with a zero balance. The only way your credit score will improve is by getting the collection accounts removed from your report entirely.
Don’t pay collection accounts without a pay-for-delete letter. A “pay for delete” is an agreement that you will pay the outstanding debt if the collection company deletes the account from your report. You may be able to settle the balance for less than you owe, but many will want you to pay in full if they are deleting it from your report.
7. Have someone add you as an authorized user
When someone adds you as an authorized user on their credit card account the credit history of that account from day one will be reported on your credit report.
Authorized users can have their own card with their name on it to make purchases, but they don’t have to even get a card. Make sure the account you are being added onto is in good standing. No late payments, low balance, and the longer it has been open, the better. Make sure you ask financially responsible people you know well to add you on as an authorized user cause if they become delinquent it will also hurt your score.
What Are 10 Things You Can do to Improve Your Credit Score?
Here are 10 things you can do to improve your credit score.
1. Pay your bills on time. If you have a history of paying your bills on time, you’ll have an easier time getting a mortgage loan, car loan or credit cards. Even if you’ve had serious delinquencies in the past, a recent history (24 months) of on-time payments carries weight in credit decisions.
2. Keep credit card balances low. High outstanding debt can pull your score down.
3. Check your credit report for accuracy. Inaccurate information on your credit report can be cleared up easily. Always contact the original creditor and the credit bureaus whenever you clear up an error so that the inaccurate information won’t reappear later.
4. Pay down debt. Consolidating your credit card debt or spreading it over multiple cards will not improve your score in the long run. The most effective way to improve your credit is by slowly paying down the amount you owe.
5. Use credit cards – but manage them responsibly. In general, having credit cards and installment loans that you pay on time will raise your score. Someone who has no credit card tends to have a lower score than someone who has already proven that he can manage credit cards responsibly.
6. Don’t open multiple accounts too quickly, especially if you have a short credit history. This can look risky because you are taking on a lot of possible debt. New accounts will also lower the average age of your existing accounts which is something your credit score also considers.
7. Don’t close an account to remove it from your record. A closed account will still show up on your credit report. In fact, closing accounts can sometimes hurt your score unless you also pay down your debt at the same time.
8. Shop for a loan within a focused period of time. Credit scores distinguish between a search for a single loan and a search for many new credit lines, based in part on the length of time over which recent requests for credit occurred.
9. Don’t open new credit card accounts you don’t need. This approach could backfire and actually lower your score.
10. Contact your creditors or see a legitimate credit counselor if you’re having financial difficulties. This won’t raise your score immediately, but the sooner you begin managing your credit well and making timely payments, the sooner your score will improve.
These ideas won’t create a dramatic improvement in your credit score overnight, but over time, they will. Remember, it takes time to develop a strong profile. Once you’ve done it, you’ll find it easier to apply for credit and favorable interest rates.
How do I Wipe my Credit Clean?
The first step to a DIY credit repair is to obtain your credit files from the three main credit reference agencies: Experian, Equifax, and relative newcomer Callcredit. Each of the agencies charges £2 for this.
Don’t go from lender to lender hoping to be accepted. Every time a lender checks with a credit reference agency it shows up on your file. To a lender, these ‘footprints’ can indicate that you are over-extending yourself financially, being refused by other lenders and forced to look elsewhere, or that there could be a potential fraud involved. ‘If you are shopping around make sure this is logged as an inquiry, not a full search,’ said a spokeswoman for Equifax.
Deborah Shields, a team leader with National Debtline, suggests that once you have obtained your files from the respective credit reference agencies you could show these copies to any lender you approach and allow them to form an initial option. If your financial misdemeanor was some time in the past there may be another reason why you are facing problems.
Your personal record may be influenced by the financial mismanagement of a former spouse, relative or business partner. It is possible to have a Notice of Disassociation added to your file. This effectively filters the other person’s information from your credit file.
Read Also: How to Get Credit Card Debt Forgiveness
You can also add a Notice of Correction. This can be used where there is a piece of information that is correct but could benefit from being set into context. For example, a credit default from a time when you had been made redundant or the following divorce.
If you are refused credit ask why. It might have to do with their scoring procedures. Because different lenders may use different scoring systems you might find you can get a loan or credit elsewhere. The good news is that taking out some form of credit and then successfully meeting the repayments can help rehabilitate your credit status.
There is also a growing range of ‘sub-prime’ products and lenders in the marketplace, who may demand a bigger deposit on a mortgage or charge a higher interest rate but are as reputable as their colleagues.
Experian 0870 241 6212
Equifax 0870 010 0583
Callcredit 0870 060 1414
www.ukcreditrepair.co.uk – links to support organizations.
National Debtline 0808 808 4000.