How To Improve Your Credit Score
If you are reading this, then you are interested in how to improve your credit score. This process is not complicated and if you follow along with the explanation as to how and what is impacting your score, and then you take the recommended steps below, you will be able to improve your credit score.
Your First Step To Improving Your Credit Score
Get a copy of your credit report and see what is on it. You will be looking for things to improve but also for errors. You should get your free credit report from one of the three credit agencies. If you already spoke to a lender who ran your credit report, they must provide you with a copy. You can also get a copy of your free credit report <– Here
Make sure that all future payments are made on time. Do not even be a day late. If you cannot make the full payment, then at least send SOMETHING. Put your payment reminders into your phone and set an alarm.
Reduce your total debt especially credit card debt. We will get into the specifics below.
What Negatively Impacts Your Credit The Most?
Bankruptcies and foreclosures are the worst thing for your credit. They will be with y ou for a long time. A chapter 13 bankruptcy says on your report for 7 years and a chapter 7 bankruptcy stays with you for 10 years. Foreclosures stay on your credit report for 7 years also but their negative impact on your credit score diminishes the closer you get to the 7th year.
Late mortgage payments are going to be a huge problem for you if you are applying for a mortgage. Whatever you do, pay your mortgage in time even if it is a partial payment.
High credit card balances (revolving credit) also negatively impact your scores. It looks like you are over leveraged. Below we will describe how you should deal with this.
Late Auto Loan Payments are also a big negative on your credit report.
Many recent credit inquiries and activities will also have a negative impact. When mortgage lenders and auto companies are running your credit too often. If you open many credit cards, in a short period of time that is also viewed as a negative.
Top Things On How to Improve our Credit Score
Reading and understanding your credit report is the first thing you need to do. There are a lot of things on your credit report but the most important things to find are as follows:
- Account Number
- Credit Limit
- Past Due Amount
- Minimum Payment or Monthly Payment
Get familiar with these on your credit report for each of your accounts.
Credit Card Balances are not the only problem. The issue really is the percentage of your total credit limit. If your balance on your card is close to your credit limit, that is a huge negative and it will reduce your credit score. Therefore, what you want to do is reduce your balances OR reduce your credit card balance vs your limit (balance to limit ratio). you want your balance to be less than 30% of your limit but even better if it is closer to 10% of your limit. Here is what I mean…
In the example below, the balance is about 66%% of the limit.
You can pay $1000 to reduce the balance to 33% of the limit AND you can also call the credit card company and ask them to raise y our credit limit to $5,000. Then your new balance of $1000 will only be 20% of the total limit of $5000. Doing this with all of your cards will increase your scores significantly. In fact, you should probably call your credit card companies now asking for an increase in your limit.
Don’t miss any payments on any of your accounts. It was briefly mentioned earlier but sending SOMETHING is better than sending nothing. They can mark you as past due, but not as “late”. Big difference when it comes to how it impacts your scores.
Manage your payments by looking at your credit report and strategically pay down certain accounts based upon what I mentioned above regarding the percentage owed vs your limit. So, if you only have a certain amount of funds to pay down your debt each month, do it strategically. Do not just send it all to ONE account.
Avoid having an account placed for collection with a collection agency. Many people just think they can ignore the phone calls and notices. Then, your account is placed for collection and once that happens, it gets reported to the credit bureaus and your credit is immediately impacted. The key is to avoid the collection by sending something. If you disagree completely with the charge, then keep communcating wiht them. Write letters indicating that you are trying to resolve the situation. If you are actively engages, then they will not place your account for collection.
Make sure that your credit report is accurate and all of the information is correct. If yuo see an error, you should contact the creditor (ie your credit card company) that is falsely reporting it. You should also contact each of the three credit bureaus (Experian, TransUnion, and Equifax) to make sure they correct it in their systems as well.
Stop buying things that you really do not need. This right here is the hardest thing for people to do. It is even hard for people to admit to themselves that they cannot afford their own lifestyle. Just because your credit card approves a purchase, it does NOT mean you can afford the item or should buy it. As you are trying to get your arms around your debt, you should not be adding to it at the same time. Here are some ideas as to other expenses that can be cut back to help get debt and your credit under control.
- Stop going out to dinner
- Cut back on your cell phone plan
- Remove vable TV premium channels and services
- Re-negotiate or shop around for all of your insurance carriers
- Do not evne think about buying a new car.
- No expensive vacations.
- No… you DON’T need the new iPhone.
Most people do not like to make changes like these and often get offended by suggesting it. I hope these tips help you to improve your credit score!
Frequently Asked Questions – FAQ
Q: Do I need to hire a credit repair company to improve my credit score?
A: No, you can follow the steps outlined above to make significant improvements yourself.
Q: If I filed for bankruptcy, can I still improve my credit?
A: Yes, but it just may take a little more time.
Q: Will opening a new credit card help my credit?
A: Yes, but you have to make small purchases AND make on time payments. Paying the card down to a zero balance is important.
Q: Will a small collection item of only $25 harm my credit?
A: Yes, ANY collection will hurt you. So, although you may want to challenge a small payment like that, it really is not worth having it go to collections.