You probably know that your credit scores — which are based on the information in your credit reports — represent one of the most important aspects of your financial portfolio, as it can have a major impact on your life. Credit scores are used by potential lenders to help them determine whether to grant you a credit card, auto loan or mortgage, and on what terms. Insurance companies, utility companies and potential landlords also might review your scores.
To get the best deals on credit and insurance products, you’ll need to achieve and maintain a high credit score. And while many may cringe at the thought of looking up their credit score due to past mistakes, it’s important you keep tabs on that important three-digit number.
Thankfully, if you do have a low score–not all is lost. There are many ways you can clean up your credit report and be back in the “Excellent” ranking. Here are a few suggestions that will make the road to increasing your credit score much easier.
1. Review Your Credit Reports From All Three Credit Bureaus.
The first step to credit score repair begins with you actually checking your report first to see the state of your financial affairs. You can get your FICO scores from each of the three credit bureaus — Experian, Equifax and TransUnion. To make this task easier, several online credit report services, such as FreeScore360, offers credit scores and reports from all three bureaus, as well as credit-monitoring services and identity protection.
2. Check and Dispute Any Errors on Your Credit Report.
After requesting your credit report, it’s important to make sure it contains no errors. From higher balances to collections that haven’t been updated, you want to make sure all the information is correct. Many times collection agencies won’t report proper amounts or paid off balances which can end up hurting your overall score.
Scrutinize all the entries on the reports. Start with the personal information, including your name, address and Social Security number. Examine all the listed credit accounts to verify whether they are your accounts and whether the payment history is accurate. If any information is incorrect, the fastest way to dispute it is to file a claim with the credit bureau. Usually they have an easy to use dispute form that can you can submit from their website. However, it’s important to always follow up every 7-10 days.
3. Start Some Positive Credit History.
You may have been denied one kind of credit, but that doesn’t mean you’re shut out entirely. If your payment history is hurting your credit scores, opening new credit can help you rebuild faster. There are credit cards specifically designed to help people who’ve suffered credit problems fix their credit — they’re called “secured credit cards.” These cards require a deposit that generally will serve as your credit limit for the account. If you don’t pay your bills, the card company can then withdraw money from that deposit.
If you open one of these cards, it’s keep an eye on that credit utilization number. Just because you have a card with a $1,000 limit doesn’t mean you should charge $800 on it — that can hurt your ratio and hinder your efforts to repair your credit.
4. Pay Your Bills on Time
The key factor in credit scoring is your track record for paying your bills on time. If you’ve been careless about meeting due dates, it will have a negative effect on your credit score, particularly if you’ve been so haphazard that your accounts wound up in collections or you had to file bankruptcy. If you haven’t paid your bills as agreed, a potential creditor won’t want to take a financial risk by lending to you.
However, all is not lost. Your credit score won’t be penalized forever. The best thing you can do is to start paying all your bills on or before the due dates. Pay medical bills and utilities promptly, too. You won’t raise your credit score by 100 points overnight, particularly if you have a long history of paying late or not at all. However, paying on time is the simplest thing you can do to improve your credit score, and it has no disadvantages.
5. Setup Payment Reminders.
Since making your credit payments on time is one of the biggest contributing factors to your credit scores, it’s a wise idea to setup automatic payment reminders. Some banks offer payment alerts through their online banking portals and remind you via an email or text message when a payment is due. You could also consider enrolling in automatic payments through your credit card and loan providers to have payments automatically debited from your bank account, but this only makes the minimum payment on your credit cards and does not help instill a sense of money management. You can also arrange to have your due dates fall on one day – just so you only have one date to remember.
6. Ask Your Credit Card Company to Raise Your Credit Limit
Raising the limits on your credit cards might seem counterintuitive to improving your credit score. However, one of the most important factors that determine your credit score is your utilization, which measures how much of your available credit you’re using. The lower this percentage, the higher the score.
You can get a higher credit limit by simply calling your credit card company’s customer service department and asking for a limit raise. You might also be able to request a limit increase on the bank’s website. However, don’t let a higher credit limit tempt you into spending more—you’ll defeat the purpose of increasing the limit if your balance creeps higher.
7. Recognize That Credit Repair Takes Time and Patience.
It’s important to note that repairing bad credit is a bit like losing weight: It takes time and there is no quick way to fix a credit score. In fact, out of all of the ways to improve a credit score, quick-fix efforts are the most likely to backfire, so beware of any advice that claims to improve your credit score fast. The best advice for rebuilding credit is to manage it responsibly over time. The process takes diligence and patience, but it’s well worth the effort!