How to Improve Your Credit Score: 5 Tips to Stay on Track
5 Tips to Improve Your Credit Score and Stay On Track
Knowing how to improve your credit score will help keep your finances in the right place. You’re probably aware that your credit score impacts your qualification for new loans and credit cards as well as the interest rates on those accounts. However, many people don’t realize that credit scores also influence other decisions, such as insurance rates, the ability to qualify for utility services, cell phone accounts, rental down-payment amount and even the ability to land a new job. If you’ve recently learned that you have a lower credit score it’s best to begin improving it as soon as possible. You never know when you might need a service that requires a peek at your credit profile. It can take months for your credit report to reflect your efforts, so getting started now is a wise idea.
1. Make Corrections to Your Credit Report
The first step that you should take is to analyze the information that is being reported by all three of the major consumer credit reporting agencies, Experian, Equifax and TransUnion. You can get a free copy of your credit report through AnnualCreditReport.com. You would think the information they’re reporting about you is correct, but errors are common. These errors could be partially responsible for your lower credit rating. To correct errors on your credit report you should contact the companies reporting bad data, then dispute the items on your credit report with each credit bureau that is reporting the inaccurate information.
2. Avoid Opening Too Many New Accounts
One of the factors that influences credit scores is the age of your accounts. Accounts that have been established for many years are viewed more favorable than newer accounts. Avoid opening too many new accounts as this can dramatically lower the overall age of your open accounts. Plus, with each new application a “hard inquiry” is noted on your credit report which can also bring down your credit score. Let your existing accounts age naturally to see a slow improvement in your credit rating over time. Only open an account or two as needed and use those accounts to build up your credit by continuously making your payments on time. Conversely, opening a new account can have a positive impact on your credit by reducing your credit utilization ratio. However, you can also do this by simply asking for a credit limit increase on your existing accounts rather than opening new ones.
3. Reduce Your Credit Card Balances
Credit reporting agencies also analyze the balances on your credit cards and other revolving debt. If you carry balances that are close to the limit, this will significantly hurt your credit score. It is best to carry as little revolving debt as possible from one month to the next. If you must carry a balance, make a strong effort to reduce the balances so that are using less than thirty percent of your available credit at any given time.
4. Pay Your Bills Online
If you’re still paying your bills by sending checks through the mail, you may want to modernize your efforts. When you mail checks you cannot control the actual date the payment will be received and processed. On the other hand, when you pay your bills online you can better ensure your payment is received on time. Most institutions allow you to set-up auto pay which makes it so you don’t have to worry about paying your bills each month as the payments are automatically deducted from your checking account. However, this is best if you are sure there will always be money in your account when the payment is scheduled to be deducted. If the payee tries to deduct your payment and there’s no money available, that could go on your credit report as a missed payment. Or, if the payment goes through you could be charged an overdraft fee by you bank to cover the missing cash. That will negatively affect your credit score and is the opposite of what you’re trying to accomplish.
5. Pay Off Collections Accounts
A collection account may be the result of a payment that you failed to make to a contractor or vendor. It may also be for a seriously delinquent credit card account. The collection account will remain on your credit report for seven years, but the damage to your credit rating could be less significant if the account balance is paid off even after going to collections. This holds true for any judgments or liens that are listed on your credit report as well. Cleaning up any past debts may improve your credit score and will show potential lenders you’re willing to take full responsibility for past mistakes.
Regardless of whether you are trying to improve a poor score to a good score or a good score to an excellent score, these strategies can help you to achieve your credit goals. While your efforts over the next few months may take a while to boost your scores, it will likely be a lot quicker than waiting the 7 to 10 years for negative items to naturally fall off of your credit report. It will take a bit elbow grease and patience, but will be worth it in the long-run. Your credit scores have an affect on just about all of life’s major decisions, and are a reflection of your financial management history over the past decade.
About the Author
Wesley LeFebvre is a credit connoisseur who enjoys helping people find the best interest rates on financial products such as personal loans, lines of credit, real estate lending and credit cards. He frequently writes about ways people can control their debt and credit usage. You can read more from him and others at APRfinder.com.