How Do I Improve My Credit Score?

Unless you have a perfect credit score, it’s always a good time to think about improving it. First, make sure that you understand what it is. Your credit score is a number calculated based on the information in your credit history. Some factors that determine your credit score include the number of credit cards and loans you have, the amount of debt you have, and whether you pay your bills on time. Credit scores generally range from 300 to 850. The higher your score, the better.

Your credit score generally reflects how well you have handled your money and bills. Lenders use it to help decide whether they want to loan you money or rent property to you. They use it to figure out what interest rate to charge you, based on calculated risk. Employers may use the score to help decide how much of a risk you are to employ in a certain position. If you apply for a job that involves handling large amounts of money or access to sensitive information, the hiring process may include a credit check.

You might be asking yourself; how do I improve my credit score? Here are a few tips:

1. Pay your bills on time. Overdue payments factor heavily in the determination of your credit score. Consider setting up regular, automated payments on or before each account’s due date, especially if you have several accounts that make keeping track of payment deadlines unwieldy. Even payments that are late by only a few days can indirectly affect your credit score, as late fees increase your overall debt.

2. Check your credit report. Check your credit report regularly so you are aware of your current score. Each of the three major credit bureaus — Experian, Equifax, and TransUnion — has its own credit report and score for you based on your credit history. That means everyone has three credit scores. Under the Fair Credit Reporting Act, you have the right to obtain a free copy of all three credit reports once each year. You can find these free reports on the site AnnualCreditReport.com, which is authorized by federal law. Some credit cards and other financial accounts also allow free or fee-based access to credit reports.

3. Fix any errors you find on your credit reports. If you find an error on one or more of the reports, file a separate dispute with each credit bureau on which the error appears. If there are multiple errors on your credit reports, you’ll need to dispute each of those individually. If there are many or complicated errors, you may want to consult a credit repair company to help you to fix the information.

4. Dispute unauthorized credit inquiries. Check for credit inquires on your credit reports. Most inquiries are hard inquiries, which impact your credit score. They stay on your credit report for an entire year. If your credit report has inquiries that you did not approve, contact the affected reports’ credit bureaus to see whether you can get them removed.

5. Clear any accounts under collection. Contact creditors for any accounts that are under collection and set up a payment plan. Depending on your circumstances, you may be able to negotiate a total amount due that is less than the current amount owed so that you can pay off the debt more quickly. Get creditors to agree in writing to remove the negative collections information on your credit report once you have paid the account in full.

6. Reduce your total amount of debt. Another factor that contributes to your credit score is the amount of debt that you carry. To reduce this more quickly, pay more than the minimum amount due each month, starting with the accounts with the high-interest rates. Use cash back rewards toward paying down your balances. If you have incurred fees due to late payments, contact your creditor(s) to see if they would be willing to remove or reduce the fees, particularly once you have shown regular on-time payment progress.

7. Open a secured credit card account. Opening a secured credit card account can help raise your credit score, especially if you don’t have any other types of secured debt, such as auto and mortgage loans. For this type of card, you deposit money into a checking account to secure a line of credit. Since payments come directly out of this account, you can’t miss a payment. This type of account helps you to create a history that future lenders use to predict your ability to manage a loan from them.

8. Strive toward optimal credit utilization. Credit utilization is the amount of debt you carry as a percentage of your credit limit. For credit card accounts with revolving balances, it’s best to keep your credit utilization at 30% or less. Credit utilization is a major factor used to determine your credit score. The lower your utilization, the better. Here are three ways to reduce your utilization:

• Pay down balances.
• Increase your credit limit. Once you establish good payment history on an account you can consider asking your creditor to increase your maximum. This will immediately lower your utilization.
• Keep zero balance accounts open. Once you have paid off a credit card balance, keep the account open while you are trying to improve your credit score. Otherwise, by closing the account, you would automatically increase your credit utilization.

If you have had some financial issues, a low credit score may at first seem like a big hurdle to surmount to move forward with your goals. But by taking the above steps and effectively managing your finances, you can watch your credit score grow, and your purchasing power along with it.