improve credit score

How to improve your credit score

Having a bad credit score can cost you literally thousands of dollars if you try to get a mortgage or car loan. The lower your credit score is, the higher the interest rate you will have to pay, if you can even get a loan in the first place. Thankfully, there are some things you can do to raise your credit score. Your score is made up of your payment history, outstanding debt, length of your credit history, recent inquiries on your credit report and the types of credit in use. The payment history and outstanding debt are the easiest areas for you to address to improve your credit score. Here are 10 things to look at:

Is your credit report accurate? Pull your credit score and have a look. If something is wrong, tell the agency, either by phone, letter, online through their website or by e-mail. They can often fix the problems, but only if they know about it and you follow up with them. The law is on your side - the creditor has 30 days to prove that their claim is accurate. If they can’t or don’t it is removed from your report. If you can prove it isn’t accurate, send the proof by registered mail and it will be removed. Even if you can’t prove it but it might be wrong, go ahead and dispute it. The creditor might not respond and you are further ahead.

Do you have accounts in collections or really past due? If so, you want to get them removed from your report. This will help your score immediately. You might even find information on your credit report that you are unaware of. Start by disputing the claims if there is a reasonable chance that your dispute might be successful. If that doesn’t work, contact the creditor or the collection agency directly. They may be open to accepted a lesser amount of money in exchange for getting some money now. Start at 50% of the debt you owe and go from there. Make sure that, as part of any settlement you reach, the creditor will remove the bad credit history from your credit report. If they don’t then you are no further ahead. Get the terms of the agreement in writing so that you have a record of what you have to do and what is promised if you do it. Doing this will definitely increase your score. Even if you have already paid off overdue claims, be sure to contact the creditor and ask them remove the item from the report. You can also dispute the item with the credit agency because the collection agency likely won’t respond since it has already been paid off.

Pay down your debt. If you need to improve your credit quickly and you have some extra money around, pay off some debt. Even if you are saving up for something, you might be better off paying off debt. By paying off debt, you lower your ratio of current debt to available credit limits. The lower this ratio is the better you look to lenders. This means that your credit score will be higher. If you are looking to get a large loan like a mortgage or car loan, paying down your debt to lower your credit score may save you more in the long run than you pay now, because you will get a lower interest rate because of your higher credit score.

Increase your credit limits. This is another quick way to improve your score. Call your credit card companies and ask them to increase your credit limit. Don’t use that extra credit. What it does is lowers your ratio of current debt to available credit, which again raises your credit score.

Cancel some cards. Some people have too many credit cards. If that describes you, cancel some. Ideally, you shouldn’t have more than four. A good ratio of debt to available credit is 40%. Don’t cancel cards if you will rise above this level by doing so. Also, if you cancel cars, cancel the ones you got most recently, so you maintain your history with the others.

Spread your debt among your cards. You are better off having some debt on many cards than a lot of debt on one card. Even if you will end up paying more interest, you will improve your score and get a benefit from moving your balances around so that all your cards are under their limits by about the same amount.

Have no debt or credit history? Get some. If you haven’t been using your credit you have been hurting your score. Go out and use your credit card for purchases and then pay it back right away. Take the low interest loan that your credit card company is always offering. Save the money and then pay it back before the interest rate increases. Once you show that you are responsibly using credit, your scores will go up dramatically quickly. You can start building your credit history at any time. It is never too late.

If you have bad credit, but a relative or spouse has good credit, get yourself added to their credit card. That doesn’t mean that you will use their card. What is does mean is that you will get credit on your credit report when they pay their bill. This is an easy way to create a positive credit history for yourself.

Pay your bills on time. This is such a simple concept, but people so often don’t do it. It is easy to forget to pay a bill until it is past due. Even if you miss the due date by a day or two it is a problem. Set your bills up to be paid by automatic withdrawal from your bank account or pay them online as soon as you get them. Paying your bills on time, or even better paying them early, will help your credit score. Even if you are only paying the minimum payments, paying early is a good thing. Since you can easily pay your bills online or at a bank machine, there is no reason why you shouldn’t do this. It will help.

Look at your credit report to find out when your lender reports. Time your payments so that they occur just before they report. That way the report will show that you have less debt than you actually do. This is a great, simple way to use your credit report itself to improve your credit score.

improve credit score

5 Steps to improve your credit score

It’s about that time. You have finally taken a look at your credit report and you cannot believe how low your credit score ranks.

Maybe it is because you missed a few payments last month. Maybe it is because when you were in college, you didn’t take proper responsibilities when it came to your personal finance. What ever the reason may be, it is not over. There are still a few steps that you can take in order increase your credit score.

For those of you who have yet to be initiated, your credit score is a 3 digit number that creditors use to determine your creditworthiness. Employers, insurers and landlords sometime use this number to evaluate applicants. This number ranges from 300 to 850. A small percentage of the population, 11% to be exact, have a credit score above 800. 29% of the population have a score between 750-799.

With a score over 700, you can generally see the difference in interest rates when applying for credit. A whopping 30 million Americans have a credit score of 620 or lower. A score that low will get you higher interest rates and the term “bad credit”.

Before you apply the 5 easy steps to improving your credit score, you must first get a copy of your credit report. You can obtain a copy of your credit report by visiting the Credit Report section of this site. Once you have obtained a copy, peruse it for incorrect information. If you find incorrect information, make sure you contact the credit bureaus to correct the discrepancies.

1. Pay your bills on time

I cannot stress the importance of this rule. Payment history is the largest contributor to your credit score. 35 % of your credit score is determined by your payment history.

If you are going to be late for a payment, do not let it go late for more than 1 payment period. Most creditors will charge you a late fee if one payment is missed, and not report the late payment to the credit reporting agencies. If 2 payments are missed in a row, expect it to show on your credit report.

Tip: A good way to not forget about paying your bills on time is to set up some type of automatic bill payment. A lot creditors offer this option. If it isn’t an option, many banks have the option for recurring online bill payments.

2. Reduce your debt and spend less

Reducing the amount of money you owe means that you are able to pay your bills and that you are financially responsible. When creditors see low balances on your credit cards, they know that you are trustworthy and they know that they can expect a payment from you when it’s due. By spending less, you will be able to maintain a low balance on your credit cards.

Tip: If you plan to apply for a car loan, mortgage, or major credit account in the coming year, start paying down your balances now. If you are one of those people who charge in order to gain rewards, put that habit away for a while. The low interest rate you will receive from your higher credit score will be a boon compared to any reward.

3. Do not close old, paid-off accounts

Closing your old accounts is not going to help you one bit. In fact, it might even lower your score because it makes your balances appear larger when your credit score is calculated. Closing your oldest accounts can shorten your credit report and make you appear less credit-worthy.

Tip: Since opening to many credit accounts and closing your old accounts can be detrimental to your credit, apply for credit when it is absolutely necessary. Think hard the next time that store clerk offers you a 10% discount if you get a store card.

4. Credit counseling is good

Do not be afraid to set up a debt repayment plan with credit counseling agencies. Contrary to what has been said in the past, signing up for debt repayment through a credit counseling agency will not decrease your credit score. In the past it used to, but today, people who sign up for these plans are no more likely to default or go bankrupt.

Tip: Don’t confuse credit counseling agencies with debt settlement firms. Debt settlement firms will actually lower your since you are paying less than what you owe. Be very careful.

5. Do not file for bankruptcy

Stay away from a bankruptcy. This is the absolute worse thing that you can do to your credit. It is worse and paying late and collections. Bankruptcy can knock 200 or more points from your credit score if you had good credit. If your credit was filled with delinquencies and other negatives factors, your score will drop, but not by so many points because you were already low. Bankruptcy pushes your score below 620. Once your score is below 620, credit becomes harder to obtain and interest rates sky rocket.

High interest lenders love bankruptcies because they know that once you have filled, you cannot file again for six years. The main stream lenders will generally reject applicants with a bankruptcy on their records, which on average lasts 10 years.