If you’re not getting approvals for loans and credit cards, or your available financing rates aren’t all that favorable, then it might be time to take some steps to improve your credit score. Building up your credit is not a process that is quick or even all that simple, but keep reading to learn 11 tips you can use to accomplish this goal.
Your credit ratings can be hurt by both errors in your reports, as well as various things that you are or aren’t doing. Some of them you may know you shouldn’t be doing, but there might also be quite a bit you don’t know. It can all add up to having a hard time getting new credit, which can do everything from making it hard to travel to paying more for an auto loan, or even a new home.
Improving Your FICO Scores
When you want to improve your current FICO score, you should first check your credit report regularly, set up some kind of system for reminding you about payments, and work diligently to cut down on how much debt you owe. Your personal payment history is more than a third of the FICO score calculation, so this category has a substantial impact on how much you’ll be able to improve your FICO score, as you’ll learn in detail in the following information.
1) Ensure The Accuracy Of Your Credit Reports:
The initial step in making your credit score better is simply checking out your credit reports. Everybody has three of them. The three major credit bureaus are Equifax, Experian, and TransUnion, and all three of them issue their own reports. Credit reports can sometimes have mistakes on them, and it happens more often than you think.
The Federal Trade Commission conducted a 2012 study that found 20 percent of consumers had a minimum of one error on one of their three credit reports. A subsequent 2015 study discovered that consumers who reported unresolved errors on their reports believed that some of their disputed information was still not accurate.
Given how your credit scores are a result of the data found in your credit reports, it’s very important to be sure that any information contained in them is accurate. If your credit reports have discrepancies or mistakes, then your credit scores are going to reflect that as well.
Fortunately, checking your credit reports from each of these three major agencies is easy enough. Per the Fair Credit Reporting Act, you have the right to one free copy each year. You can get these free credit reports through AnnualCreditReport.com, which is a government-required site that the major bureaus run. Credit.com is another way to get a free credit report snapshot.
Many credit scores, including your FICO score, run a range starting at 300 and going up to 850. The various credit tiers within that range typically break down as follows:
Under 600: Bad credit rating
600-649: Poor credit rating
650-699: Fair credit rating
700-749: Good credit rating
750-800: Excellent credit rating
Once you have access to all three of your credit reports, there are a few quick questions you can ask yourself in the pursuit of possible errors:
Is there anything left over from decades ago still showing up?
Does all of your personal information appear accurately? That can include your full name, birth date, address, and Social Security number.
Do you see applications for credit or accounts which you don’t recognize?
Do you see missed or late payments that you know you made on time?
Is every one of your credit reports getting reported?
It’s helpful to go through each credit report using a highlighter to single out every inconsistency. Be mindful of the fact that one credit bureau or report might contain an error the others do not. This is why it’s so essential to check all three of the reports from every agency. You might not find any, but you also might find a few or even a lot of errors.
If you find errors, you have to dispute them with each credit bureau whose report shows them, since each of the three are different establishments. Also, each error has to have a different dispute. You can dispute errors alone for free, but reputable credit counselors and credit repair companies can help you out for a fee.
2) Make A Plan For Improving Your Credit Score:
If you know that your credit reports are accurate, and you know what you’re doing or did wrong, but would like to improve it, then create a free account at Credit.com in order to create an action plan that raises your credit over time. You’ll even have access to tips on your potential problem areas.
If you want your credit score to start improving, then you need to aim to keep your various credit card balances low, as well as with any other kinds of revolving credit you might have. You also need to start paying down your total debt instead of shuffling it around, but don’t close any credit cards you don’t use if you’re looking for a fast fix.
Also, don’t attempt opening a new credit account as just a way of boosting your available credit.
3) Fix Any Late Payments:
Closing an account isn’t going to make late payments go away. The best thing to do is to make sure that you don’t make any more late payments. Establish payment due date alerts for every bill you have so that you can start getting organized. Many lenders and banks let you move credit card payments around with ease. Try to line up your due dates to align with your paychecks, but also don’t cluster too many bills together at once.
Ask your lenders or credit card issuers if they might forgive some of your late payments. You might have missed the bill entirely, your check could have gotten lost in the mail, or you were even overseas on vacation. If you have a good track record of making payments on time, then credit card companies are usually pretty forgiving.
A delinquent payment might stay on a credit report for as many as seven years after the payment that was late or missed was reported. That original date might also be known as the original delinquency date.
However, credit bureaus don’t consider payments late until things are 30 days past the originally intended due date. Just keep in mind that the 30-day rule at credit bureaus won’t spare you penalties or late fees from credit issuers if you’re only days late.
4) Age Your Credit Well:
If your credit history is short, there’s not a lot you can do in order to improve it fast. You might try piggybacking on the credit card of a friend or family member if they’re willing and they have a long history of paying on time.
You can have them add you as one of their authorized users. On the other hand, you might not find anyone willing to do that since they’d be responsible for charges you make. Another option is just waiting things out without closing any accounts.
A good average age for strong credit history is five years or more. The longer a run positive credit history has, the stronger the scores tend to be. For instance, a consumer with an only average credit history of a year might see a credit score in the low 600s, even though someone of average credit for five years could be a lot higher.
Be mindful of the fact that without any history at all, it might be a quarter to half a year from activity starting before it starts showing up on credit reports. If you just got a credit card, stick with smaller purchases you can pay off by full each month so that you can start building credit and demonstrate your ability to manage monthly payments.
5) Clear Up Collection Accounts:
Rather than endlessly transferring the debt to new accounts, pay it off. Contact each debt collector you see listed on your credit report, and see if they’d be interested in stopping their reports of your debt to the major credit bureaus in exchange for you making a full payment. That technically would violate the agreements some collectors have with Equifax, TransUnion, and Experian, but it doesn’t hurt to try. It’ll be a nonstarter for some, but others will bend the rules to collect the money.
Just make sure that you get their promise in writing prior to making a payment. Also, any debt that looks inaccurate or you don’t recognize should be disputed with all three of the credit bureaus anyway. Getting those removed can mean rapid improvement in your credit score.
6) Don’t Be Unfairly Hurt By Old Mistakes:
If you have ever suffered a short sale, gone through foreclosure, or filed for bankruptcy, you might be wondering when your credit score nightmare could ever end. How long is going to take to honestly get out of the hole you’re trapped in? Despite the severity of these circumstances, the biggest hit to your credit score is when it first happens, and the impact will go down over time. In fact, federal laws put time limits on how long those events can hurt you credit-wise.
7) Get Yourself A Credit Card:
If a credit card is something you’ve never once had before, then your scores might be choking a little bit because of the previously mentioned account mix. Just be sure you always pay on time. New credit cards with a bad history of payments are going to hurt you rather than improve your various credit scores. If your credit is fair, good, or excellent, then you’ll have a lot of credit card options, some with perks, like gas savings or travel points. If your credit score is poor or bad, then keep reading.
8) Open Up A Secured Credit Card:
Secured credit cards are the kind of credit card where you deposit money into a checking account which secures your line of credit which the lender or bank is extending you. For instance, you might put $200 into an account and then get an equivalent line of credit, or sometimes higher.
Secured cards let people with bad credit get an account and establish a positive payment history, which goes a long way in showing the world that you’re back on solid ground.
Defaulting on payments for a secured credit card, though, can mean the initial deposit gets forfeited and used to cover the balance left on that card.
9) Limit Yourself In Terms Of Credit Applications:
In the heat of the moment, getting 10 percent off just for signing up for a store credit account seems like a great idea, but your credit score is going to get dinged for the application, and it won’t matter if you got approved or not. Hard inquiries impact credit scores for a whole year, but your score does start improving again nearly immediately after you apply.
Such hits are typically small, say 3 to 5 points, but if you’re straddling the line of two tiers and putting in lots of applications quickly, the damage can add up.
If you discover hard inquiries in your credit reports that you don’t know about, contact those lenders to find out what was going on. If it’s not accurate, or you don’t know what happened, you need to assume identity theft or fraud has taken place. Alert each credit bureau promptly so they can investigate the alleged fraud. Doing this might get those hard inquiries removed, although that might take time.
Soft inquiries are different in that they don’t impact your credit score, and they happen in cases of background checks or if a current lender is considering raising your line of credit. Soft inquiries can happen even if you don’t give permission, but they don’t impact credit standing at all.
10) Adjust Your Debt-To-Credit Ratio:
If your monthly credit card balances each month exceed 30 percent of your available credit limits, then your score is suffering, even in months where you pay off the whole balance on time. The reason for this is that your statement balance is more than likely getting reported to credit bureaus. So, watch your balances, and think about paying off some of your balance early if you know you’re going to go above the 30 percent mark in any given month.
Your credit utilization ratio is certainly a primary factor used in determining consumer credit. That’s why you might hear it’s not a good idea to close out any credit card accounts you aren’t using in an attempt to boost your credit scores. Doing this can depress your utilization ratio percentage in a way that hurts you more than helps you.
If you do choose to close a consumer credit account, be sure you can keep up at least a 15 percent utilization without that account. If you can’t, you need to look into other options in regards to that account, such as replacing it with a new account, just so you can keep your good utilization ratio up.
Another ratio that has a central role in determining your credit is your debt-to-income ratio, and that’s really just all of your monthly debt divided by the amount of money you make every month. Lenders frequently use this ratio to see if you can make monthly payments to them or not.
The primary difference between a credit utilization ratio and a debt-to-income ratio is that the first one is the one which influences your credit scores. The second is used by lenders in determining whether or not you are extended credit, which is still important and why it needs to be watched carefully.
If you happen to be going over that 30 percent mark consistently, talk to your credit card provider about a possible credit limit increase. You might even open up a whole new credit card so you can divert some spending to it. Remember that credit inquiry, though, and make sure your card is able to handle it. In many cases, a small hit is more than offset by new credit, but if you apply for a lot of credit at one time, or you’re at risk of rejection, proceed carefully.
In Conclusion
As stated earlier, improving poor credit ratings isn’t simple, nor will it happen overnight. Yet, the efforts are well worth it. You don’t want to spend the rest of your life constantly worrying about getting approvals for credit cards, mortgages, and car loans.
Using the 10 steps in the article will help you save money, but you’ll also pick up valuable skills you can use to keep a great credit score once you have one. Don’t give up completely on credit if yours is bad right now. It’s better to stay on top of things over time, handling your finances soundly and successfully while working along a credit repair plan that suits your circumstances.
To learn more financial success tips read “11 Tips for Financial Success“.