Having a good credit score helps you get lower interest rates on loans and credit cards. However, raising your credit score overnight is not always simple. You must first determine why your credit score is low before you can improve it.
Jim Triggs, president and CEO of nonprofit credit counselling firm Money Management International, Inc (MMI), tells CNBC Select that understanding the specific factors affecting your credit score is the first step towards raising it quickly. Here are some tips and tricks from Triggs and two other experts on how fast your credit score can rise and how to make it happen.
Reduce your outstanding credit card balances.
Paying more than your minimum payment each month, if you can, is a great way to chip away at your revolving debt and maintain a low credit utilization rate. Keeping your credit utilization rate low is particularly critical if you have a lot of revolving debt.
Seeing the impact on your credit score depends on how quickly creditors report the fulfilled balance on the consumer’s credit report, says Triggs. “Some creditors report immediately after the payment, while others report at a particular time each month,” she says. Credit card companies usually report your statement balance to the credit bureaus monthly, but this may vary depending on your issuer. You may call or chat online with your issuer to find out when they report balances to the bureaus.
It is better to pay off your balance each month as soon as possible. You may also make multiple payments towards your balance throughout the month to keep track of your expenditures, which makes it easier. Although it’s good to pay even a portion of your debt off, paying off the entire amount will have the greatest and fastest impact on your credit score.
Increase your credit limit.
There are two ways to increase your credit limit: you may either ask for an increase on your current credit card or open a new one. The lower your credit utilization rate is (assuming you do not max out your card each month), the higher your overall available credit limit is. Credit utilization is the amount of credit being used relative to the amount of credit available. Before requesting an increase in your credit limit, ensure that you will not be tempted to spend more than you can afford.
Before you apply for a new credit card, do your research. Your credit score is determined by the number of times you apply for and open accounts. Every application requires the credit card issuer or lender to pull your credit report, which results in a hard inquiry and dings your credit score a few points. And be careful not to apply for too many credit cards in a short amount of time, as this may send a red flag to issuers. Issuers may have stricter terms and requirements because of the economic fallout from the coronavirus.
There are some credit cards available for those with poor credit, but most of the top reward cards require excellent credit. The Petal 2 “Cash Back, No Fees” Visa Credit Card has no fees whatsoever, and allows applicants with no credit history to apply.
Make sure your credit report is error-free.
Checking your credit report for any errors that could be negatively impacting you can help you increase your credit score quickly. If you are able to dispute them with proof and have them removed, your score may improve.
It is important to take the time to review your credit report, as about 25% of Americans have an error on theirs. Fraudulent or duplicated accounts, as well as misreported payments, are some of the most common mistakes to look for.
According to financial educator Thomas Nitzsche at MMI, most of the clients they meet with have not reviewed their report in the last year, and are often surprised by what they find and want us to discuss with them. By going to AnnualCreditReport.com now, you can get a free credit report from the three major credit bureaus (Experian, Equifax, and TransUnion).
Request that the negative entries on your credit report be removed.
Having a lot of late payments on your credit report or an old collection account that has since been paid off showing up may be the problem. Ask to have them removed if this is the case. (And if you do have an unpaid collection account, make it a priority. Unpaid collection accounts can have a negative impact on your score.)
It may take longer and require more effort on your part, but it is worth it. Triggs recommends contacting the collection agency, debt buyer, or original creditor (depending on who currently services your account) to have a paid-off account removed from your credit report.
It might be best to request for the account to be removed entirely, rather than just showing as paid, as this would have a more significant impact on your credit score, Triggs says. Unpaid collection account or unpaid charge-off on your credit report might prevent creditors from granting you future credit.
Doing this on your own might be overwhelming and stressful at times. You can use a credit repair company to help you out. They know the federal laws and they take charge on your behalf helping you resolve the issues you might have.
Wrapping up
There is no one solution that fits all when it comes to improving your credit score, but you can immediately take these four steps to clean up your credit report. According to Equifax global consumer solutions president Beverly Anderson, every person’s credit journey is unique. There are many factors that affect credit scores for the majority of consumers, but they will not always have the same impact.
Thank you for reading our article. We hope you learned new ways to battle creditors and banks while protecting yourself.
We would encourage you to become a member of HigherScoreNow.com and start to leverage all the benefits of having good credit. You deserve this.
A credit score rates a consumer’s creditworthiness using a range from 300 to 850. This number indicates the risk level of a borrower. A higher credit score indicates a better borrower to prospective lenders.
Credit scores are determined by an individual’s credit history, including the number of accounts currently open, the amount of debt currently owed, the length of time payments have been made on current accounts, and other information. Lenders use credit scores to determine whether individuals are likely to repay loans on time.
Only three credit bureaus in the U.S.—Equifax, Experian, and TransUnion—are of major national significance. This trio dominate the market for collecting, analyzing, and disseminating information about consumers.
The FICO Score is the most frequently used credit score model. FICO, now known as Fair Isaac Corp., created the credit score model. Other credit scoring systems exist, but the FICO Score is by far the most common. An individual’s score can be improved in a variety of ways, including paying off loans on time and keeping your debt low.
Importance of Credit Score
Your credit score determines whether you’ll be granted a loan and the interest rate you’ll pay. Employers also check it to see whether you’re a dependable person. Service providers and utility companies may look at it to determine whether you have to make a deposit to use their service. Even landlords use this to determine if you can get an apartment or not. It goes even further, and can even affect whether you’ll get the best cell phone plans.
Lenders frequently examine borrowers’ scores, particularly when determining whether to raise interest rates or credit limits on credit cards. Basically, your credit score can be a hammer or a lever based on how good it is. Bad scores are a hammer, as you end up paying more and missing out on so much. On the other hand, good credit is a lever as you’ll reap the benefits of low-interest rates and great deals regardless of your age or income.
How Credit Scores Work
Your credit score can have a significant impact on your financial life. It is vitally important to lenders when deciding whether or not to grant you credit. People with credit scores below 640 are considered subprime borrowers. Subprime mortgages are often charged higher interest rates than conventional mortgages to compensate for the higher risk they carry. Borrowers with low credit scores may also require a shorter repayment period or a co-signer.
A credit score of 700 or higher is often considered very good, and borrowers with such scores may be eligible for lower interest rates and, consequently, pay less interest over the life of the loan. Scores above 800 are regarded as excellent. Credit scores are rated on a scale defined by each creditor, but the FICO model is frequently used.
The Factors That Determine Your Credit Score
Consumers’ credit histories are recorded and maintained by three major credit reporting agencies in the United States (Equifax, Experian, and TransUnion). Although the information collected by the credit bureaus may differ, five primary variables are used to determine a credit score:
Payment history: The payment history is 35% of a credit score and reveals whether a person pays their obligations on time.
The total amount owed: The proportion of credit available to a person that is utilized, known as credit utilization, contributes to 30% of the credit score.
Length of credit history: The length of credit history is 15%, with longer credit histories being considered less risky because there is more data to assess payment history.
Types of credit: 10% of the credit score is determined in part by the ratio of installment credit, such as car loans or mortgages, to revolving credit, such as credit cards.
New credit: 10% of a person’s credit score is also affected by whether he has a mix of new credit accounts, how many new accounts he has recently applied for, whether he has recently applied for credit inquiries, and when he opened his most recent account.
If you have several credit cards, but don’t use some of them, closing those credit cards may actually negatively impact your credit score. Rather than throwing out unused credit cards, keep them safely in separate envelopes, organized by category. Go online to access and verify each card, ensuring that there are no balances and that your address, email address, and other information are accurate.
Make sure you don’t have autopay set up on any of these credit cards. Make certain you have your email address or mobile phone number in the notification section so you are notified if something goes awry. Check them every six months or annually to ensure that no charges are made or that there are no irregularities.
VantageScore
In 2006, Equifax, Experian, and TransUnion credit bureaus created VantageScore as an alternative to Fair Isaac Corp.’s FICO Score, a consumer credit rating product. According to Equifax, Experian, and TransUnion, VantageScore employs machine learning techniques to produce a more accurate picture of a consumer’s credit.
According to research conducted by consulting firm Oliver Wyman, the use of VantageScore has increased by about 20% annually since June 2015, accounting for about 90% of all credit scores. The FICO score, which is used by about 90% of all lenders, remains the most popular credit score. More than 12 billion VantageScores were used by over 2,500 users between July 1, 2018, and June 30, 2019, according to the most recent research. Credit card issuers and banks were the most ardent VantageScore users.
FICO and VantageScore scores differ in several respects. FICO creates a bureau-specific credit score for each of the three credit bureaus, using only that bureau’s data. Consequently, the three scores are really three distinct scores, each of which is determined by a distinct bureau. VantageScores, on the other hand, are single, tri-bureau credit scores, and each bureau uses them.
How to Improve Your Credit Score
An individual’s credit score can rise or fall depending on new information when information is updated on their credit report. In order to improve their credit score, consumers can take the following actions:
Pay bills on time: Always ensure your bills are paid on time. If you have bad credit, you’ll have to make timely payments for six months consecutively before seeing a difference in your credit score.
Increase your credit line: Ask about getting a credit increase on your credit card accounts. This should be fairly easy if you have good standing. But once you do get an increase, make sure you are still keeping a low credit utilization rate.
Keep your credit card accounts open: Don’t close any credit card accounts, even when you stop using the card. If you close an account, your credit score might be hurt depending on the card limit and age. For example, let’s say you have a $1,000 debt with a credit limit of $5,000 shared evenly between two cards. This puts your credit utilization rate at 20%. Closing one of the cards takes your credit utilization to 40%, negatively affecting your credit score.
Work with a credit repair company: At t times the idea of improving your credit score can feel overwhelming, and you may not even know how to improve your credit score on your own. Getting the best credit repair company to work with you will ease your stress. They’ll help negotiate with creditors and the three credit bureaus. They’ll also offer you advice to maintain a good credit score.
Frequently Asked Questions
What is a credit score?
A person’s credit score is determined by a number from 300 to 850 which indicates their creditworthiness. Credit scores factor in repayment history, the types of loans, the length of credit history, and their debt amounts, in addition to other factors.
What is the ideal credit score to have?
Credit scoring models vary in terms of range, but scores from 580 to 669 are typically classified as fair; 670 to 739 are usually rated good; 740 to 799 are generally rated very good; and 800 and higher are usually rated excellent.
Who is responsible for calculating credit scores?
The credit reporting industry in the United States is dominated by three major players: Equifax, Experian, and TransUnion. There are, in fact, several credit bureaus, but only these three are of national significance. Collecting, analyzing, and disseminating information about consumers is what these businesses do.
Conclusion
Your credit score is one number that can either cost or save you a lot of money in your lifetime. If you have a great score, you will pay less interest on any line of credit you take out. However, it is up to you, the borrower, to maintain a strong credit score so that you can have access to more loans, if necessary.
Thank you for reading our article. We hope you learned new ways to battle creditors and banks while protecting yourself.
We would encourage you to become a member of HigherScoreNow.com and start to leverage all the benefits of having good credit. You deserve this.
Your financial well-being is heavily dependent on your credit reports and credit scores. More than 200 million Americans have credit reports at the three credit reporting agencies. Curious how you compare to them? Here is your chance to see—we’ve collected 15 bad credit stats that might surprise you.
With these 15 bad credit statistics, you’ll also learn about common problems that hold down credit scores, as well as some reasons you should strive to improve your credit scores.
Only 11% of Americans have the lowest FICO scores.
It’s true that credit problems are fairly common. However, having severely low credit scores is not common. According to FICO, the corporation that developed the FICO credit scoring system, only 11.1% of U.S. consumers have credit scores lower than 550. . (Scores below 580 on the 300-850 FICO scale are very poor.)
Those with low credit scores face many obstacles when compared to those with higher scores. For example, those with very low credit scores may have a difficult time obtaining financing, depending on the lender’s approval requirements. Consumers with the lowest credit scores can still qualify for a loan, credit card, or other types of account, but they will pay significantly higher interest rates and receive less attractive borrowing terms.
If you want to look at this from a glass-half-full perspective, the best rates are usually reserved for individuals with FICO scores of 700 or higher. 89% of the population has FICO scores of 550 or higher. Credit is definitely available for those scoring in the 500s or 600s, although it may not be offered at the best rates.
More than 20% of Americans have a subprime credit score.
A subprime credit score, according to Experian, is a FICO Score between 580 and 669. 18% of Americans have a credit score in this range. Credit scores in this range (580-669) are not as detrimental as those with a score of 580 or less. You may still be able to get financing at a better rate than those with major credit issues, but s.you may still be unable to qualify for certain types of financing, such as premium credit cards.
More than 43% of consumers now have excellent FICO scores.
More than 22% of U.S. consumers have FICO scores over 800, and 43% of people have scores over 750. Those are elite credit scores, by any definition. You’re not alone if you have bad credit, but you should work hard to be part of the majority.
There are several common characteristics among consumers with these excellent credit scores. If you want to join this group, these are the good habits you will have to practice:
Always pay your bills on time at all times.
Keep your credit utilization (balance-to-limit ratio) low on your credit cards.
Get a good mix of different types of accounts on your credit report, i.e. installment loans, revolving credit cards, etc.
These financial best practices will help you achieve a credit score that ranks among the elite 43% of the population.
17% of the population has been at least three months late on a loan in the last two years.
FICO and VantageScore credit scores are designed to estimate how likely you are to default on a credit obligation in the next 24 months. Being 90 days late on credit cards, automobile loans, mortgages, or any other account on your credit report is a significant problem because you’ve already demonstrated to credit scoring models that you’re prepared to go well beyond the due date.
90-day late payments can really hurt you, especially in the beginning. Your credit score may be severely damaged. However, the same 90-day late payment won’t affect everyone’s credit score the same way..If you have a higher score, your credit report will suffer more if you make a new 90-day late payment because you have more points to forgo. Someone with poor credit will not suffer the same consequences because they have already forfeited so many points. Thankfully, if you avoid delinquency in the future,, the late payment’s impact will dwindle over time.
Nearly 20% of consumers have been 30 days (or more) past due in the last 12 months.
It’s best to pay your creditors on time to maintain a strong credit history. Conversely, paying your creditors late is one of the fastest methods to ruin your credit rating. Your payment history accounts for 35% of your FICO score, which makes it the most important factor.
A late payment, even a single one, can have serious repercussions. For some consumers, a new 30-day late payment may result in a credit score drop of 30 points or more, depending on when the late payment occurred and whether the account was still past due.
According to the FTC, 20% of consumers have an error on at least one of their credit reports.
It is critical to take responsibility for your poor credit score if you make a mistake. Admitting that there is a problem may be difficult, but doing so puts you in control and should encourage you to improve your credit management habits.
However, your credit might be damaged due to someone else’s mistakes, or a credit bureau might accidentally mess up and report inaccurate credit information. According to the Federal Trade Commission’s credit reporting accuracy study, 20% of consumers have at least one error on one of their credit reports. That is why the Fair Credit Reporting Act’s dispute provision exists. Consumers who think their credit reports contain errors may dispute them and have them corrected for free.
Luckily, there are also credit repair companies that can help you dispute any inaccurate information on your credit report and make the process stress-free for you.
Around 15% of U.S. consumers don’t have a FICO score.
Having no credit score can negatively affect you when you want to apply for a new credit card or loan. You may not be aware that having bad credit could keep you from progressing in many situations. After all, lenders might be hesitant to provide you with money when they have no idea how well you managed your credit obligations in the past.
Your report must meet certain minimum standards to qualify for a FICO credit score. These include;
An account older than 6 months that you can prove without a doubt belongs to you. .
No deceased notation on your credit report.
Have one undisputed account updated within the last 6 months.
According to FICO, around 15% of U.S. consumer credit reports do not meet these requirements and thus cannot receive a FICO Score. VantageScore, a competing scoring model to FICO, has a more liberal scoring threshold, so more people have a VantageScore credit score than a FICO credit score.
NOTE: Some personal finance celebrities boast of having a “zero” FICO Score which is completely impossible. There is no such thing as a credit score of zero. Scores range from 300 to 850.
Every few seconds, someone’s identity is stolen.
Credit scores can be damaged not only by poor credit management and credit reporting errors, but also by fraud and identity theft. Every two seconds, someone becomes a new victim of identity theft.
It is crucial to act immediately if you think you have been victimized by identity theft. You can either place fraud alerts on your credit reports or freeze them entirely. You may even choose to utilize both credit protection tools simultaneously if you prefer.
Credit freezes are much better than fraud alerts because they are proactive and prevent creditors from seeing your credit reports and scores. Using this approach, you can prevent a new account from being opened rather than being informed after it has been opened.
43% of consumers haven’t checked their credit scores in the last year.
Credit reporting errors and identity theft are prevalent issues. Checking your three credit reports from Experian, TransUnion, and Equifax can help you detect them. It’s a smart move. A significant drop in your credit score, after all, might indicate that something is wrong with your credit reports. Your credit information is so important that reviewing your reports and scores once a month is ideal.
Unfortunately, the number of people who neglect to monitor their credit is significant. According to an annual survey by the Consumer Federation of America and VantageScore Solutions, 43% of consumers have not checked their credit scores in the last year.
You can check your three credit reports for free once every 12 months at AnnualCreditReport.com.
Children can also have poor credit.
You work hard as a parent to keep your child safe and healthy. You instruct your child how to brush their teeth, eat their vegetables, and avoid sticking their fingers in electrical sockets. You may not realize that your child’s credit reports also need protecting.
Normally, children under 18 shouldn’t even have credit reports or scores. For example, your son or daughter may not have a credit report until after they turn 18 and apply for a student credit card or a loan. Conversely, you may add them to your existing credit card account as an authorized user to establish credit sooner.
Sadly, there is another reason a credit bureau may create a credit file for your child. Children can be victims of identity theft. According to Javelin Strategy & Research, over one million children were victims of identity theft in 2018. Fraudsters can create an inquiry-only credit report when they use a child’s name to apply for credit. This is because it contains no negative information, so it can be used to apply for fraudulent credit.
It is important to be on the lookout for warning signs of child identity theft, such as unexpected bills or collection calls on behalf of your child. It is also possible to freeze your child’s credit reports with the three credit bureaus for additional security if you wish.
The average credit card balance is more than $5,000.
Using your credit cards and paying them off monthly is the best way to protect your credit scores and bank accounts. Many Americans, however, do not follow this important rule of thumb. According to Experian, the average credit card balance among U.S. consumers was $5,221 as of Q3 2021.
You may allow your credit card balances to creep upward for several reasons. You may have used credit cards to help you through a financial emergency or to help you make ends meet if you lost your job or didn’t follow a monthly budget. Or you may simply have a bad habit of overspending.
It doesn’t matter what caused your credit card debt; you should begin chipping away at those balances as soon as possible. For example, you may want to consider consolidating your credit card debt with a personal loan or balance transfer offer.
62% of adults have accrued credit card debt in the last year, according to the NFCC.
Despite the fact that credit card accounts can help you build your credit report and credit score, credit scoring models such as FICO and VantageScore place a great deal of emphasis on how you manage your credit cards.
Using your credit cards irresponsibly by not paying off your balances every month can be a costly choice. Your credit scores will likely decline if the balance-to-limit ratios on your cards increase.
According to the National Foundation for Credit Counseling, 62% of Americans say they have had credit card debt in the last year. If you are one of these people, you should try to change your ways as soon as possible.
Paying down your credit card debt and lowering your credit card utilization rate may improve your credit score. You will also save money by avoiding costly interest charges on your credit card debt.
At least 25% of consumers with low incomes do not understand how to improve bad credit.
Having bad credit is tough to break out of. A rudimentary knowledge of credit scores is required, which is not provided at any level of education. A recent survey from the Consumer Federation of America and VantageScore Solutions Inc. indicates that at least one-quarter of low-income consumers (those who earn less than $25,000 per year) do not possess the knowledge they need to raise their credit scores.
According to the 10th annual credit score survey by the Consumer Federation of America and VantageScore Solutions, certain consumers may be hindered by credit score misconceptions. The survey reveals that low-income borrowers are unfamiliar with the following aspects of credit scores:
25% don’t know that mortgage lenders use credit scores.
30% are not aware that low credit balances boost their credit scores.
More than 50% don’t comprehend that consumers have more than one credit score.
Maybe it’s time to bring credit education into the classroom, so that everyone can be armed with the knowledge needed to responsibly manage a credit score.
Having a low credit score can cost you over $100,000 more for a mortgage.
Having good credit scores can help you obtain attractive rates and offers when you apply for financing. The same is true for mortgage loans. It is surprising to learn just how much lower credit scores can cost you. The extra interest charges can add up to well over $100,000 on a single mortgage loan.
For example, over the life of a $350,000, 30-year fixed rate mortgage with a 2.523% APR, you would end up paying $149360 in interest. That APR rate requires a FICO score of 760 or higher. If your FICO Score is below 640, your interest rate will be 4.112%. At that rate, the total amount of money you’d pay in interest would be $259,707.
That’s $110,347 more you would pay to finance the same house over the same length of time.
Of course, this assumes that you will pay off a 30-year fixed-rate mortgage over 360 months rather than paying it off early or selling your home. It also assumes that you will not refinance your loan to take advantage of a lower rate.
On average, credit scores are rising.
The good news is that credit scores in the United States have been rising over the last nine years. The average FICO score is currently 706. A good credit score for the average U.S. consumer is one that is considered to be in the range of 700 to 799. However, it is up to your lenders to determine what constitutes a good credit score.
Only 8% of consumers with great credit scores are predicted to default on their credit obligations in the future. If you work hard to repair bad credit and boost your credit scores into the good range, you will probably be granted much better offers when you seek new loans.
What do these stats tell you?
One, you may be denied certain types of financing if you have bad credit. Renting an apartment, getting a new cell phone plan, or even getting a new job can be difficult if you have a poor credit history. You may be forced to pay higher interest rates, higher insurance premiums, higher deposits for utilities, and more if you have low credit scores.
Having bad credit is not uncommon, but you should not view it as an irreversible situation. Many people have had credit problems and worked hard to alter their situations. Even minor advancements along the path of improving your credit score can significantly impact your financial well-being. However, it can be a long, difficult journey. But even the little steps like raising your credit score from 550 to 600 is something to celebrate.
Reach out to us today if bad credit is holding you back. We can help by removing and challenging the negative items that affect your credit score.
Thank you for reading our article. We hope you learned new ways to battle creditors and banks while protecting yourself.
We would encourage you to become a member of HigherScoreNow.com and start to leverage all the benefits of having good credit. You deserve this.
You might be experiencing bad credit if you’ve got an overdue student loan, a high credit card balance, a lot of overdue collections accounts, or even have been foreclosed on. Lack of good credit is a barrier to many of life’s most important milestones. You may be denied a credit card or even forced to seek assistance for an auto loan or mortgage, and the interest rates offered to you may be substantially higher.
Thankfully, a credit repair company can help you get your credit back on track. They will help you negotiate settlements with creditors, remove inaccurate information, contact collection agencies, prepare letters to credit bureaus, offer advice and support to repair your credit, and update your account. They work with credit reporting agencies on your behalf and ensure that positive changes are reflected on your credit reports.
They are experts in credit law and well-versed in consumer protection laws and statutes such as the Fair Credit Reporting Act (FCRA), the Fair Debt Collections Practices Act (FDCPA), or the Fair Credit Billing Act (FCBA).
Keep in mind that bad credit doesn’t have to be a permanent scar on your record. Instead, it can be a life lesson, allowing you to correct your mistakes. If you’re not interested in using a credit repair firm, you can also greatly improve your credit score on your own if you simply have the know-how, the patience, and the determination to stick to your budget.
Here are 10 techniques for dealing with your bad credit.
1. Check Your Credit Score and Credit Reports Regularly.
To begin do-it-yourself credit repair, you must get copies of your full credit report from all three credit bureaus: TransUnion, Equifax, and Experian. Credit reports and scores are two separate (but interconnected) things.
Credit Score
Your credit score is used by many lenders to determine how much of a credit risk you are. The higher the number, the less risky you are as a borrower and the more favorable of a loan you can receive. Someone with a high credit score may be able to borrow more money and receive a lower interest rate. Your credit score is used to determine your ability to make payments and your eligibility for loans.
There are five factors that comprise your credit score, and they are weighed in different proportions when calculating the final number:
Payment history (35%): Always pay your loan on time for a pristine history.
Credit utilization ratio (30%): Huge balances on your credit cards will hurt your score.
New credit accounts (10%): You get a hard credit inquiry whenever you apply for a loan or new credit card. This lowers your score temporarily.
Credit account mix(10%): Having various loan types (e.g. mortgages, auto loans, credit loans, etc.) helps you have optimal credit.
Length of your credit history (15%): The longer your credit accounts have been open, the better your credit score. The longer you maintain a good credit history, the better your score.
Having a credit score above 700 lets you do pretty much anything a person with a higher score can do. Actually, if you have a higher credit score, let’s say 850, lenders know that they are unlikely to make much money from you, so it can work against you.
Credit Report
Your credit report shows your credit history in detail. You can check if you’ve made any loan payments late or if you’ve had any late payments in the past. It’s important to check your credit report every now and then to ensure that there isn’t an error on your account.
You can check your credit score and credit report for free through reputable free credit score tracking apps such as Credit Karma or Credit Sesame.
2. Dispute Any Errors You Find
The next step in credit repair is to dispute incorrect information on your credit report. While errors aren’t common, they do occur. It’s worth cleaning up any small errors you do see, but don’t try to correct accurate information.
You should also check your identity information (including your Social Security number, the spelling of your name, and address) and credit history to see if there are any problems with your credit.
Make a copy of the report and highlight the errors if you notice any on the list of credit cards, outstanding debts, or major purchases. Make copies of your bank statements next, because the credit bureaus won’t act without proof.
In the letter, notify the credit reporting agency about the error and provide a copy of the report. Share how the report is incorrect and include enough evidence to support the claim. Sending this letter by certified mail is a good idea even though some Credit Bureaus now allow you to submit disputes online.
You must send a letter to the reporting agency asking for a response within 30 days. You can always get the help of a credit repair company to straighten things out for you.
3. Stick to a Budget and Don’t Go Beyond It
Make sure you’re not spending more than you earn, no matter how painful or scary it may be. You need a budget. This may be extra difficult (though maybe even more necessary) for people who don’t get a consistent income throughout the year. For example, if you’re a restaurant server, an Uber driver, or a freelance writer, your income may vary from month to month, so you will need to budget extra.
Review your tax returns for the past two years to get a sense of how much money you take home in a year. Subtract your regular monthly expenses from your current income to get your starting point. Next, estimate your monthly spending habits for other expenses such as gasoline, groceries, and entertainment. Create a limit, based on your income, of what you can spend in each of the different categories of expenses. Resist impulse purchases.
4. Pay Your Bills on Time
Make sure you pay all your bills on time. Missing a payment accounts for 35% of your credit score. That’s heavier than any other factor. Missing a single payment on a credit card can knock down your credit score significantly. To improve your credit score, paying your bills on time is the most important thing you can do. Even if you are only paying the minimum, your credit score will improve.
To prevent damaging your credit score, make as many bills as possible autopay. Even if you normally pay your bills on time, autopay is still a good safety net if you somehow forget.
Some bills might not be eligible for autopay. Make yourself a number of reminders if you fear you will forget about these. For example, you can set a mobile notification a week before the due date asking yourself to pay early—and another late notification on the due date. If you’re really concerned, put sticky notes on your bathroom mirror reminding you to pay. It is critical.
5. Pay Off/Down Credit Card Balances and Other Debts
Avoid being charged high-interest rates by paying off your credit card in full before each due date. You may not always be able to do that, but you must develop a plan to clear your debt across multiple accounts. It is not bad to focus on the debts that cost the most to pay before tackling debts that cost the least.
When you’re making no progress at all on your five credit cards draining away your bank account in the form of minimum payments and interest charges, it can feel like you’ve got nothing to show for your efforts. Prioritize paying down the smallest loan until it’s finished, then you can focus on the next smallest loan. Your debt decreasing can also help your mental state.
6. Keep Track of Your Credit Utilization Ratio.
Using more than 30% of your total credit is a bad idea. Credit utilization accounts for 30% of your credit score. In short, 30% of your credit score is based on the amount of credit you are using vis-à-vis the amount of credit that you have available to you. Consider the following example: You have a $10,000 credit line on one credit card and a $5,000 outstanding balance. In this situation, your credit utilization is 50%.
A good credit utilization ratio is 30% or less. If a lender sees you using 90% of your available credit, it may indicate financial trouble. Try to pay off as many of your large purchases as possible to prevent exceeding the 30% credit utilization threshold.
7. Don’t Close Your Old Credit Cards
Even if you don’t use a credit card, it may still be worth keeping an account. Your credit score is determined by the proportion of your debts that are currently outstanding. This is known as your credit score’s “importance factor.” The longer the average age of your debts, the better your credit rating.
For instance, if you opened your first credit card four years ago, the average length of your credit history is four years. If you open another credit card today, the average length of your credit history will be two years. And if you want to close your first card, the average length of your credit history will be one day. The accounts that you close in good standing will remain on your credit report for several years, but the impact on your credit score when the account is removed will be felt.
Don’t just close your credit card if it no longer suits your lifestyle. Keeping it open will help preserve the average age of your loans. It’s smart to keep a credit card around if you don’t have to pay an annual fee. However, if you don’t use your card, it’s probably not a good idea. You can call your bank to switch to a no-annual-fee version of the card.
8. Ask for Help
You can get the help of a professional credit repair company to improve your credit score. Inaccurate data, blemishes, and reporting mistakes can all have a negative effect on your credit score. Also, late payments, collections accounts and charge-offs can have the same dramatic effect. A poor credit score not only affects your ability to get a loan but also get employment in some cases. A credit repair company comes in to help you get everything on track. They are skilled negotiators, who know all credit laws and can offer you ongoing support and advice.
If you must, lean on those with better credit. It still is possible for you to achieve some of the greatest milestones in life even if your credit score is holding you back. Ask family members to assist you in improving your score if you need help buying a house or car.
An authorized user card is one way to get your own good credit history on someone else’s credit report. It’s an injection of healthy credit habits into your credit score. They don’t even have to give you the authorized user card, they can just shred it and allow you to reap the benefits of their good behavior secondhand.
You may want to consider asking a relative with good credit to cosign with you if you want to get a new loan. For instance, if you want to apply for a debt-consolidation loan but are not qualified, a cosigner can help you out. In this case, if you default on the loan, the family member will be responsible for the bill.
9. Do Not Apply for New Credit Cards
Even if you were offered a sign-up bonus for a new credit card, resist the temptation to open one. Each time you ask for a new loan, the lender will scrutinize your credit to determine if you’re worthy. This is known as a “credit check.”
There are two kinds of credit checks: soft and hard credit pulls. A soft credit pull has no adverse effect on your credit score, as it’s used to pre-approve loans for any potential customers. Hard credit pulls, on the other hand, can lower your credit score temporarily. Lenders use this to decide whether they can extend the loan to you.
Credit scores are likely to plummet dramatically if you apply for new credit too frequently, although you might see a rebound within a month or two. Frequent credit inquiries are viewed as a warning sign by lenders. They don’t want to see lots of inquiries because it can reflect that you are desperate for money.
10. Use Credit-Building Tools
To get back on track, use available credit tools to help you. There are unique ways to build your credit on the internet. You can get apps that help you build credit by offering various types of loans—each of which you pay down monthly. You’ll find some that even send you back the initial term of the loan, minus the interest rate and a small application fee, at the end of the term.
When you make a payment each month, good behavior is reported to the Credit Bureau and your credit score and profile may improve. The initial application might lower your credit score, but if you make all payments on time (essentially to yourself), it will increase.
You can also improve your credit by obtaining a secured credit card from a bank. These cards are issued to people with poor credit because they are effectively zero risk for them. To put it simply, you hand over money to the bank and they give you a credit card with a matching credit limit. For instance, if you give the bank $2,000, you’ll receive a credit card with a $2,000 limit. Should you neglect to repay your debts, the bank will keep your money. When you graduate from a secured credit card, the bank will return your money.
Wrapping Up!
It takes tremendous willpower to climb out of debt, but you can do it. Make sure there aren’t any errors on your credit report and dispute them with the credit bureaus. Even if it’s just the minimum payment, make sure you pay all your bills on time. Starting with the smallest credit card balance, focus on eliminating credit card debt as quickly as possible. Keep your credit utilization low, and keep all your credit cards open and in a sock drawer, if you must, to remove temptation (as long as they don’t have annual fees).
There really is no quick credit fix. However, if you plan to take on a big debt or buy a new home, it’s worth the effort. You’ve also got credit repair companies like High Score Now to help you out.
Thank you for reading our article. We hope you learned new ways to battle creditors and banks while protecting yourself.
We would encourage you to become a member of HigherScoreNow.com and start to leverage all the benefits of having good credit. You deserve this.
