How to Improve Your Credit Score
How to Improve Your Credit Score
The ever-important number known as your credit score can affect everything, from prospective jobs to the amount of interest you pay on a loan. Overall, the better your credit score, the less you will be considered a risk to lenders.
Unfortunately there is no quick-fix for credit that's in need of repair. Credit can be ruined overnight but it can take years to rebuild. However, you can effectively restore damaged credit if you manage it responsibly over time. Following these few tips will put you on the right track to improving your credit score and building positive credit history.
Review Your Credit Report
Your FICO credit score is statistically calculated and determined by a combination of factors, including: current debt, payment history, length of credit history, types of credit, past delinquencies, and number of inquiries. It is important to review your credit report for errors such as incorrect late payments or limits. You may obtain a free copy of your credit report once a year from each of the 3 major credit bureaus (equifax.com, experian.com, and transunion.com). Any mistakes should be reported to the credit bureau using an online dispute. Each of the credit bureaus have their own online dispute process where you can report an inaccuracy. Beware of hiring third party credit service companies – you can usually do this yourself.
In general, the customer is innocent until proven guilty by the creditor. This means that if the credit bureau cannot contact the company reporting the bad debt (which happens a lot in the case of medical collections) or if the company cannot verify that a debt was paid late for instance, then the information is removed and the score is then recalculated.
Pay Bills on Time
Although this may seem obvious, delinquent payments have the most negative impact on your credit score. Payment history makes up 35% of your credit score, and missing one payment could hurt your score up to 100 points. Consider setting up payment reminders that notify you when a payment is due, or enroll in automatic withdrawal from your checking account.
Typically, liabilities such as utilities, rent, and cell phone bills are not reported to the credit bureaus unless they go into default. When that happens they are typically reported as collections which can damage your credit considerably.
Pay Down Credit Card Balances
You will get a credit boost if you remove debt from your credit report. You will see the quickest improvement if you pay your smallest debts or your highest interest cards first. Also, don't max out your credit cards! As a general rule, try to keep your balance below 30% of your credit limit.
Be Careful of New Accounts
Opening a new account to try to increase available credit could lower your account average and hurt you in the long run. It also could appear risky to lenders. Similarly, closing unused accounts won't make them disappear, and doing so could also hurt your credit. Because the length of your history is a factor in determining your score, having a long, established credit helps to increase your score. It would be most beneficial to pay off your credit cards but don't close the accounts.
Remember, it's nearly impossible to rebuild your credit overnight. Keep these tips in mind, and as long as you don't have any serious marks on your credit report (like bankruptcy or foreclosure), you should be able to increase your score within just a few months.