How To Improve Your Credit Score

How To Improve Your Credit Score

How To Improve Your Credit Score
Reading Time: 9 minutes

Improving your credit is one of the most important things you can do for your financial future. A good credit score is a powerful tool you can use in your life.

It impacts everything from the obvious stuff (expensive interest rates) to stuff you might not expect (the quality of your romantic relationships).

In this article, I’m going to show you how your credit score impacts your life, and how to improve your credit score.

  1. How I Went from Bad Credit to Perfect Credit
  2. How to Raise Your Credit Score in 30 Days
  3. Understand How Credit Scores Are Calculated
  4. Learn How Your Credit Score Controls Your Life

1. How I Went From Bad Credit to Perfect Credit

Finally I worked up the courage to check my credit score, and the number was just staring back at me—570 Very Poor. I had lost my job in the financial crisis. The only way I could make ends meet was by living off my credit cards. Groceries, gas, my car payment. I put everything on my credit cards.  I had $23,181 in credit card debt. And $60,174 in student loan debt.  I remember staring at the stack of bills and thinking… “Should I just declare bankruptcy?” But that was terrifying. I knew that bankruptcy would follow me for 7 years or more, and make my life more difficult in all kinds of ways.  It took me months of research to find a proven system I could use to repair my credit. I followed the system step-by-step. And as I did, I built better financial habits. 

Today, I have the highest credit score possible – my FICO score is 850 Excellent.  And my life is easier because of it. I don’t have to worry about calls from collection agencies. I don’t have to worry about creditors trying to garnish my wages.  Now my perfect credit score is a tool I use.  I get pre-approved for mortgages. I get low interest rates on loans. Credit companies chase me to apply for their cards.  Since I did it, I know you can too. And I’ll show you how.

2. How to Raise Your Credit Score in 30 Days

There are a few things you can do to raise your score quickly. These are just the basics you can do yourself.

If you need serious help with your credit score, you should consider using a program put together by credit professionals that guides you step-by-step. This is what I did, because by debt was so high and I had delinquencies.

Request Your Credit Reports

If you want to improve your credit, the first step is to know where you stand. 

Start by pulling your credit reports from all three major credit bureaus — Experian, Equifax and TransUnion. You can get free credits reports from each credit bureau weekly through April 2021 by going to AnnualCreditReport.com.

Review Your Credit Information

Once you pull your credit reports, comb through each one and check that the information listed is accurate:

  • Personal information, such as the name and address listed on your account
  • Account information, such as balances, credit limit, payment history and current status (active, inactive or closed)
  • Collection data, such as if any of your accounts were marked past due for over 30 days and sent to a collection agency

Pay Down Your Debt

Paying down your creditIf you have the funds to pay more than your minimum payment each month, you should do that. Chipping away at your debt can have a major impact on your credit score because it helps to keep your credit utilization rate low. 

How quickly your score goes up depends on how quickly the individual creditors report the paid balance on your credit report. Some creditors report within days of the payment, some report at a specific time each month. Credit card companies typically report your statement balance to credit bureaus monthly, but this could vary depending on your issuer. You can call or chat online with your card issuer to find out when they report balances to the bureaus.

The sooner you can pay off your balance each month the better. You can also make multiple payments toward your balance throughout the month so it is easier to track your spending, and it keeps your balance low. 

And although it helps to even pay off a portion of your debt, paying off the entire balance will have the biggest and fastest impact on your credit score.

Decrease Your Credit Utilization Ratio

One of the biggest impacts on your credit score is your credit utilization ratio. 

Your credit utilization ratio is the amount of debt you have divided by the total amount of credit you’ve been extended. So if you have a $10,000 credit limit on your card, and you’ve charged $8,000 worth of expenses, your credit utilization ratio is 80% ($8,000/$10,000). 

The suggested utilization ratio is 30% or less on each individual account and all accounts combined.

The best way to increase available credit is by asking for a credit line increase offer on your account. I would definitely suggest everyone accept their a credit line increase offer, if available — just be smart enough not to use it!

It’s suggested that you request a credit line increase about once every 6-12 months. Why? It helps with your credit utilization ratio, which helps your credit score. Sign in to your credit card account online to see if a credit limit request is waiting for you, or call your credit card company to learn more about your options.

The higher your overall available credit limit, the lower your credit utilization rate (as long as you’re not maxing out your card each month). Before asking for a credit line increase, make sure you won’t be tempted to spend more. 

Check Your Credit Report for Errors

One way to quickly increase your credit score is to review your credit report for any errors that could be negatively impacting you. Your score may increase if you can dispute them and have them removed. 

About 25% of Americans have an error on their credit reports, so it’s important to take the time to review. Some common errors to look out for include fraudulent or duplicated accounts, as well as misreported payments.

Ask to Have Negative Entries Removed

You may have a series of late payments on your credit report. You may have an old collection account that’s since been paid off that still shows up. If this is the case, ask to have them removed. (And if you do have a collection account that’s unpaid, make this a priority. Unpaid collection accounts can negatively impact your score.)

Speak to the collections agency, debt buyer or original creditor (depending on who now services your account) to remove a paid-off account from your credit report.

Try to convince them to not only show the account as paid, but to remove the account altogether, which could have a much bigger impact on your credit score. Having a paid collection account or paid charge-off on your credit report could deter creditors in issuing you future credit at all, so getting these removed helps a lot.

Getting negative entries removed can be a very powerful way to boost your credit score quickly. If you want to get the most our of this powerful method, consider using templates put together by credit professionals to get the best results

3. How Credit Scores Are Calculated

how-credit-scores-are-calculated

35% Payment History

This shows whether you make payments on time, how often you miss payments, how many days past the due date you pay your bills, and how recently payments have been missed. 

The higher your proportion of on-time payments, the higher your score will be. Every time you miss a payment, you negatively impact your score.

30% Current Amount Owed

This reflects the entire amount you owe, the number and types of accounts you have, and the proportion of money owed compared to how much credit you have available.

High balances and maxed-out credit cards will lower your credit score, but smaller balances can raise it – if you pay on time.

15% Length of Credit History

This looks at how long your credit accounts have been established. It includes the age of your oldest account, the age of your newest account and an average age of all your accounts.

It may seem wise to avoid applying for credit and carrying debt, but it can actually hurt your score if lenders have no credit history to review.

10% Credit Mix

FICO scores will consider your mix of credit cards, retail accounts, personal loans, installment loans, and mortgage loans.

Having a mix of revolving credit accounts, including installment loans, home loans, and retail and credit cards may improve your score. But don’t worry, it’s not necessary to have one of each or anything like that. They just want to see proof of you successfully managing different types of accounts.

10% New Credit Inquiries

If you’ve opened a lot of accounts recently or applied to open accounts, it suggests potential financial trouble and can lower your score.  

Research shows that opening several credit accounts in a short amount of time represents a greater risk, especially for people who don’t have a long credit history. If you can avoid it, try not to open too many accounts too rapidly. It can make you look needy.

4. Learn How Your Credit Score Controls Your Life

Credit scores play a huge part in your financial life. But credit scores don’t just come into play when you’re looking for financing. 

Many people use credit scores as a way to evaluate you as a person. And if the number they see looks bad, it scan have serious consequences for your life. 

The best way to avoid these negative consequences is raising your credit score.

It Can Keep You From Getting Hired

Employers in most states have the right to run credit reports on people applying for jobs. The version of the report presented to employers is not exactly the same that a lender would see, but it can still bring major red flags to light.

According to LearnVest, “47% of employers run credit checks on job candidates primarily to reduce the potential for theft and embezzlement, reduce liability for negligent hiring, and assess trustworthiness.”

It Affects Where You Can Live

Landlords, property managers and rental agencies typically review potential tenants’ credit reports. They look for a pattern of missed payments or other negative information on your credit reports that indicate you may not pay your rent.

If you have bad credit, the landlord or property manager may require you to pay a larger deposit or get a cosigner. They might reject your rental housing application altogether.

It Influences the Car You Can Drive

Your credit scores influence the auto loan and lease rates available to you. If you have an excellent credit score, you’re likely to qualify for the best terms available. 

If you have very poor credit, you may have trouble getting a car loan at all.

The best leasing deals go to the people who present the lowest risk that they won’t pay as promised. But a finance office will also consider your income, existing payment obligations and track record for handling debt.

It Dictates Credit & Loan Terms

Banks, lenders and credit card issuers will check your credit before approving (or denying) your application. 

If you’re approved, your loan or credit card’s interest rate is partially based on your credit score. The higher your score, the more likely you are to get approved and receive a low rate. A higher score increases a lender’s confidence that you will make payments on time and may help you qualify for lower mortgage interest rates and fees.

Generally, rewards cards and cards with low APRs require the highest credit scores.

It Impacts Your Relationships

A recent Bankrate survey found that nearly 40% of adults say knowing someone’s credit score will affect their willingness to date that person.

But that isn’t the only way your credit score could affect your relationships. 

Research from 2015 by the Federal Reserve Board found that your credit score may affect who you end up with romantically and how long you’ll stay together — and the better the score, the stronger your relationship may be.

The research showed that people with the highest credit scores were most likely to form long-lasting committed relationships. And the bigger the discrepancy between a couple’s credit scores, the more likely the relationship will end within the first five years.

The Next Step Is Yours to Take

I know this seems like a lot. It did to me.  It was hard to even look at my credit score at first. Then, after I looked, I was ashamed that I had such a bad credit score. It was hard to admit the negative impact that having a low credit score was having on my life.  But I realized that it was never going to get better until I started DOING something about it. So I found a program that guided me through the credit repair process, and I followed every step.  I was intimidated by the process. I didn’t feel like I knew exactly who to talk to and what to say. So I used a system put together by professionals to guide me. By following their outline step-by-step, I discovered how to improve my credit.  Now I don’t just have a good credit score, I’ve got the highest credit score you can have. My FICO score is 850 Excellent. That picture at the top of this post is an actual screenshot from my bank account. I know you can do it, because I did it. The good news is that you can take these steps one at a time, just like I did, and improve your credit score. And when you do that you’ll be setting yourself and your family up for success now and in the future. You can do it! Start today. 

Your credit score can have a big impact on your financial future. Sign up for Experian to get your credit score and credit report for free! Join millions of other Americans and get the tools you need to help understand, manage, and master your credit—in under 3 minutes. Checking your credit score with Experian won’t hurt your score.

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