5 Tips for Fixing Your Credit Score
Your credit score is an important part of your financial life. More lenders than ever rely on credit scores to determine not only who is approved for a loan but who gets the best terms on those loans. If you are able to secure a loan with a poor credit score, taking a loan with a higher interest rate could cost you thousands of dollars over the life of the loan.
Beyond that, employers, landlords, and car dealerships sometimes want to see a good credit score before working with you. The good news is that fixing your credit score is relatively easy. The bad news is that it might take a while.
Tip #1: Get copies of all three of your credit reports. It turns out there is nothing you can do to fix your credit score directly. Instead, your credit score is a mathematical result of a formula that uses the information in your credit reports to calculate a specific number. That means having the best credit score requires having the best data on your credit report. You can’t fix what you don’t know is broken, so you need to get a copy of your credit report and go through it with a fine-tooth comb. Every missed payment costs you points. Every paid off loan awards you points. So be sure you get what you deserve on both counts. You are entitled to a free credit report every year from each of the three major credit reporting bureaus. Review your report for any mistakes or out-of-date information. Look for incorrect information, but also look for information that seems to be missing. If you aren’t listed as the joint holder on an account that has a good history, you should be, because you could be missing out on precious credit score points.
Tip #2: Dispute any inaccurate information on your credit report. Go directly to the creditor if possible. The process for removing negative information from your credit is much faster when initiated from the creditor’s side than it is from the borrower’s side. If there is accurate, but older, negative information, you now have the ability to contact them and see if they will offer to take payment in exchange for removing the negative information from your credit reports. Your credit score assumes that the information on your credit report is accurate. That means mistakes on your credit report translate into mistakes on your credit score. Also be sure to report any inaccurate information. Just because it doesn’t seem to matter to you doesn’t mean it won’t matter to the algorithm. For example, too many addresses could indicate that you may be unstable.
Tip #3: Make on-time payments. It might sound simple, but the biggest impact you can have on your credit score over time is by making on-time payments. Making several on-time payments will improve your score more than making one large payment. Your credit score not only deducts points from your score for late payments, but it also adds points to your score for every payment made on time. The more on-time payments the better. The other advantage is that recent information is weighted more heavily than older information. Not only does paying on time increase the number of current accounts, it ensures that all recent data is in your favor. Set as many accounts to autopay as possible to ensure that you won’t accidentally forget to make a payment, especially if you receive paperless statements. Pay the minimum on time on every account you have and watch as those payments start to outweigh older, negative information.
Tip #4: Get a new equity line of credit or credit card, or ask for higher limits on your existing accounts. It may sound counterintuitive, but having more credit available to you can help increase your credit score. That’s because your credit score takes into account both how much total credit you have available and how much of that credit you are using. If you open a new account, that automatically increases your total amount of credit. It also lowers the total percentage you are using, even if the total overall amount is the same. Just don’t use the new account, or you can trigger the reverse effect. Remember, your credit score is not a calculation of your finances, only a calculation about how you have used your available credit. Keep your available credit high and your credit utilization low.
Tip #5: Sometimes you can give your credit score a jump start by including accounts that look good for you. Piggyback off a trusted relative or friend and their good credit. Most credit card companies will report payment history and credit usage to the credit reports of not just the primary card holder, but also to the reports from authorized users. That means every on-time payment your friend or family member makes also counts for you. Even better, if they have a high-limit card, that extra available credit counts for you as well. If they aren’t using much of their credit line, then that extra space lowers your credit utilization, too. Just be sure to pick only your most stable and trustworthy friends or family members, because their negative actions can hurt your score. You can also try new services like Experian Boost that improve your credit score by including things like phone bills or rent payments on your credit report, along with their good payment history, of course.
If you have enough time, just using credit when you need it and never being late on any payments will eventually result in a great credit score. However, if you don’t have that much time and need to improve your credit right away, these five tips can help speed up the process. Need more information on how to fix your credit score? Reach out to the experts at Key Credit Repair today for a free consultation!