How to improve your credit score

How To Improve your Credit Score

This section will focus on improving your credit scores and provide you with information on how you can do even more to improve your credit status. Doing so will go a long way towards improving your credit score because your credit score is derived from the information in your credit report. But there is even more you can do.

This blog post covers techniques for raising your credit score as high as possible. The benefits will be two-fold — you will have greater access to credit and the credit you obtain will cost less. Saving money is essential to reduce your debt.

What you need to know

You may find that your credit score is still lower than you would like (or deserve) even after making sure your credit report is accurate. The average FICA credit score has fluctuated between 675 and 700 in recent years, with 850 being the maximum score one could have. People with below average scores must pay high interest rates meaning it will take you longer to get out of debt.

What can you do?

First, you need to recognize that efforts to improve your credit score take time to have an impact. Most people find that it takes about one year for their score to show much improvement. This is partly because changes take time to show up in your credit report. It is also true that your credit history stays with you for a long time.

If your history is positive, that is a real plus. But, if your history has some negatives, those stay in your credit file for six to seven years. New positive information helps, but it does not erase old negative information. Nonetheless, waiting to do something about a low score only prolongs the problem.

The time to get started is now. Basically, there are two broad categories for the things you can do to improve your credit score. The first involves improving your financial behaviors. The second involves changing your debt situation. For each, let’s list things you should DO and things you should Not Do.

Action steps

1. Improve your financial behaviors

Do pay your bills on time. The largest single component of a credit score is your payment history. If you are late on or skip payments on items, such as credit cards or loans, your score will surely be affected. This is true for installment debt payments (such as a television) and any of your monthly bills, such as your utilities. This is because many merchants — not just lenders — report payment patterns to credit bureaus.

Do focus any search to obtain new credit to a short period, such as one month. The number of inquiries from lenders in your credit bureau file mega affects your credit score. If the inquiries all come in within thirty days, they will all be recognized as part of one search, such as for an auto loan. But, if you spread your search over several months, the pattern will look like multiple searches — negative in most credit scoring systems.

Do check your credit score periodically — perhaps every six months while you are working to rebuild your credit score. Your inquiries do not negatively impact your credit score. Make sure you get your score directly from the credit bureaus or FICO. Using the second party to get the score (such as the many “free offers” you might see on the Internet) will be viewed as coming from a lender. This means they will be counted as a lender inquiry, and that is a negative.

Do avoid applying for any new credit for one year. Inquiries from creditors are automatically deleted from your record after 24 months and, usually after 12 months, they are not calculated in your credit score. This technique is especially helpful if your credit report currently shows a high number of inquiries. That fact, in and of itself, may be the major reason for a lower than necessary credit score.

Do Not ignore bills for which you are currently behind. Bring them up-to-date.

Do Not close old accounts. Your combined accounts determine the average “age” of your accounts. Older accounts factor into your credit score more positively than brand new accounts because it shows a longer credit history.

2. Change your debt situation

Do reduce your balances on your credit cards and other loans. If you have a high, outstanding balance on one or more of your credit cards, you will lose points on your score. Lower balances tend to lead to higher FICO® scores. Pay down your balances and keep them low.

Do Not open new accounts to transfer high balances and spread your total debt across multiple accounts. If you feel you could benefit by moving a portion of the balance from one card to another, use an existing account. Of course, you would not want to move a balance from a low-interest rate card to one that has a higher rate.

Do get help if you are having trouble paying your debts. It may be possible to have your debts renegotiated if you can show that your difficult financial situation is temporary, and it can be improved over time. For example, you may have fallen behind on your bills because of unemployment, but you are working again now. You can contact lenders directly or use a reputable not-for-profit credit counseling agency. You are not asking your creditors for forgiveness here — you are just asking for a little more time.

Do pay off any late or written-off debt. These items will still stay on your credit report but the fact that you made good on the debt will be a plus.

Do re-establish your credit if you have had problems in the past. Opening one or two credit accounts and using them responsibly will slowly, but surely rebuild your credit score. This may take a few years, however.

Do stop using your credit cards if you are not paying your balance in full each month. Using a card on which you carry a balance is almost guaranteed to result in ever-increasing balances.

Do Not ignore debt problems. Credit scores can go down much faster than they can go up. Lenders typically report negative information right away. Again, contacting lenders directly or a telephoning a reputable credit-counseling agency may help.

Do Not use repossession as a way to get out from under debt. Repossession negatively affects credit scores, even if the repossessed item has sufficient value to pay the debt. And in most cases, its value is not enough to pay off the full balance owed. Thus, you will still owe some amount of remaining debt. It would be better to sell the item yourself, add additional funds if necessary, and pay off the debt in full.

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