Oh, the credit score. It can sometimes make or break a person’s financial success. If you have a high credit score, you will get the lowest interest rates and best deals when it comes to your home mortgage, car loans, insurance rates, and business loans. As long as you keep up the payments, the world is a perfect place of countless companies lining up to give you money.
But what if your credit has a few blemishes, late payments, bankruptcy or is considered poor? Do you ask yourself “how can I improve my credit”? Unfortunately, it is a lot easier to lower your credit score than it is to raise it, but there are a number of ways you can get yourself on the right path and begin to improve your credit score.
Your Credit Score
The three main credit-reporting bureaus, Equifax, Experian, and TransUnion, all report a FICO score on your credit report. Understanding what comprises that score is extremely helpful in the process of improving it. If you have late payments, collections, too much extended credit, a short history of receiving credit, repossessions or a bankruptcy, these factors can all go toward lowering your score.
Scores typically range between 300 and 850, and fall into five categories: Excellent (751 and up), Very Good (711-750), Good (651-710), Average (581-650) and Poor (300-580). Being on the low end of that range means consistent denials and extremely high interest rates if a lending institution is even willing to finance you. Therefore, it is critical to maintain a good credit history or improve your credit score.
How Quickly Can The Score Be Improved
If there are no really serious credit issues, but you would like to improve your credit score, it can be done in a fairly short period of time. However, with recent bankruptcies, repossessions, no available money on pre-existing credit cards, late and missed payments, and other serious issues, there is simply no quick way to repair the score.
For example, bankruptcies stay on your credit report and affect your score for up to 7 years. That doesn’t mean it isn’t advisable to begin fixing the problem immediately so that future issues do not occur. Establish a plan and begin repairing the damage.
Check Your Score
To improve your credit, you need to know the score. The three main credit-reporting bureaus generally do not report the same score. Your credit scores will probably be similar, but not exactly the same. That is why when lending institutions discuss one score, they have averaged all three scores.
You are entitled to one free credit report per year, per bureau. Request these reports and determine what your score from each bureau current is. Experian, Equifax and TransUnion each have a website where you can request the report and/or obtain an address to write for a complete report. You may also get the report and scores from online sources, but directly from the credit bureaus themselves is recommended.
As of early 2014, Discover Card is now offering a free FICO credit score with each monthly statement. The credit card company is one of the best in the market and provides excellent customer service. If you don’t have Discover, try the Barclaycard from Barclays Bank for a free Experian score.
Stop Old Habits
You can’t change your credit history, but you can improve credit moving forward. Most importantly, pay your bills on time. If you have a mortgage, make certain it is paid each month in a timely manner. Once that bill is paid, attack your credit cards and pay as much as you can on the higher interest ones, optimally more than the monthly payment requested by the credit card company.
If you can transfer a higher rate card balance to a lower interest rate card, then do so. In this manner you can pay off the credit cards faster than if you stick to higher interest rates. Above all, try to restrict using the cards or the balances you have worked so hard to pay or your debt will be run right back up to the maximum again.
Many people have so many credit cards that they barely fit in their wallets. This is how many credit issues begin in the first place. It is easy to keep whipping out a different card for every purchase, but eventually, the month end bills come in and all the payments to multiple companies add up to more than the consumer can afford. Choose one or two of the best cards with the lowest interest rates and cut up all the others, but don’t close the accounts. Closing unused credit card accounts can actually lower your credit score.
Continue making payments on the abandoned cards until they are paid off, and then don’t use them again. For the cards that you are choosing to keep, reduce or eliminate spending on them as well. In other words, stop buying on credit and if you can’t afford something with cash, don’t buy it.
Stop Before You Max Out The Cards
Just because you have a $10K limit on a credit card doesn’t mean you have a free license to spend the entire amount. Should you do this, two things will happen. For one, you will probably not be able to afford even the minimum monthly payments, never mind reducing the principle debt.
Second, you will have no available credit in the event of an emergency. In addition, credit-reporting bureaus lower your score if your available credit has been maxed out, even if you are making payments on time. Try to stay within a 25%-30% range of use based on your overall credit limit, even if you do pay them off completely each month.
Quit Applying For Credit
If you have overextended credit and maxed out cards, common sense should kick in and dictate that you should stop applying for credit. Even if you haven’t defaulted on payments, getting more credit isn’t going to help the situation and it will eventually put you in a position where everything collapses and your credit score is ruined. Each time a lender checks your score to determine if they will lend you money, it takes your score down a little bit.
It also shows that you have way too many borrowing options on your credit reports and that lowers the score as well. Instead of applying for credit, if you are already overextended, contact companies and attempt to work out payment and settlement options.
The credit-reporting bureaus are not flawless. Nearly everyone can find errors on their credit report. Contact lenders and the bureaus to dispute misinformation. Companies simply don’t have the time or resources to prove a debt that is aged or fairly small. If they do not provide documentation to the credit bureaus that the debt is indeed valid, it must be removed from your report.
Debt that is over 7 years old, in most cases, must also be removed, thus improving your overall score. Look over your three credit reports with a fine tooth comb and anything that is not completely factual, waste no time in disputing it to have it corrected or removed.
Improve Your Credit Score
There is generally no quick fix to credit issues, but by following some simple common-sense practices, credit scores will indeed rise over time. In today’s society, credit is generally an important factor, and having a good score will allow a positive financial future. Follow the above steps on how to improve your credit score and save yourself thousands in interest charges – money that can be invested in your retirement or elsewhere.