CREDIT IMPROVEMENT TIPS
Credit Improvement Tips
Without good credit, you’ll find it hard to get approved for a mortgage, rent an apartment, or even get a credit card. You’ll have to pay higher interest rates on any loans you do get.
You don’t have to live with bad credit forever though. There are things you can start doing today to improve your credit score and get your life back on track.
8 CREDIT IMPROVEMENT TIPS
1. Get Copies of Your Credit Reports
Before you can start improving your credit score, you have to know what it is and what is on your credit reports. Your credit report is a combination of your repayment history, debt, and how you manage your credit. It also contains information about any bankruptcies, foreclosures, repossessions, and debts that have gone into collections.
You’ll need to get copies of your credit report from all three major credit bureaus, Experian, TransUnion, and Equifax. You can get free copies once every year.
2. Dispute Errors on Your Credit Reports
The information on credit reports is not always correct. There can be data entry errors, transposed Social Security numbers, wrong addresses and birthdays, and identity theft. Errors like late payments can significantly reduce your credit score because late payments make up 35% of your score.
You have the right to dispute any errors you find under the Fair Credit Reporting Act. You must submit the objection in writing to the relevant credit bureau. The credit bureau must respond within 30 days. The sooner you get inaccurate information off your report, the sooner you can start improving your credit.
3. Avoid Adding to Your Credit Card Debt
New credit card purchases raise credit utilization rates. That’s the ratio of credit balances to credit limits that make up 30% of your credit score. Your goal is to keep your credit utilization score below 30%. For example, if you have a credit card limit of $10,000, your balance should not exceed $3000.
4. Pay Off Balances That Are Past Due
Your credit history accounts for 35% of your credit score. It’s the leading factor that determines your credit score. The more behind you get on your payments, the more you’re hurting your score.
Instead of waiting until the credit card companies or other lenders cut you off or send your accounts to collections, start catching up on the past due amounts. Your goal should be to pay off your accounts. Once you’ve done that the lenders will update your account’s status to “paid in full”. This will look much better than accounts that remain unpaid.
5. Don’t Apply For New Credit Cards
When you apply for new credit, lenders usually conduct a “hard pull”, a credit review that shows on your credit report. The number of accounts you apply for and the number of “hard pulls” there are on your report are used to assess whether or not you're a high risk.
If you open a lot of accounts quickly, you send up a red flag. It looks as though you are in financial trouble, and this can further impact your credit score. Having no or just a few newly opened accounts in the recent past indicates financial stability and can raise your credit score.
6. Don’t Close Accounts
Closing credit card accounts does not improve your credit. If you try to close accounts that have past due balances, the outstanding balances will remain on your report until you pay them off.
Even closing accounts with zero balances can adversely affect your credit. 15% of your credit score is the length of your credit history. Your oldest and newest accounts as well as the average age of all your accounts are taken into consideration. The longer your credit accounts are open, the more your score will increase.
7. Get in Touch With Creditors
Your basic instinct might be to avoid your creditors, but if you’re having trouble making payments, you need to do just the opposite. You will probably be surprised at how helpful creditors are.
Many creditors have hardship programs that allow you to lower your monthly payments. Keeping the lines of communication open will eventually pay off as you get your balances under control and increase your credit score.
8. Pay Off Your Debt
The amount of debt you have accounts for 30% of your credit score. To raise your credit score you have to pay down your debt.
There are two common ways to do this, the avalanche method which involves paying off the credit card with the highest interest rate first. You make minimum payments on the others. Once that card is paid off, you move on to the card with the next highest interest, and so on.
With the snowball method, you focus on paying off the card with the lowest balance. After that one’s paid off, you start on the card with the next lowest balance.
