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If your credit scores are not as high as you’d like, there are ways to bring them up. Depending on your circumstances, there are steps you can take to boost your scores. There isn’t one single magic thing that will improve your scores, but by being strategic and implementing some of the tips listed here, your scores are sure to improve.
A credit score predicts your creditworthiness, or how likely you are to pay back a loan on time. There are many different scoring models, but most credit scores are calculated using things like the length of your credit history, your payment history, your credit mix, and the amount of debt you owe. Credit scores generally range between 300 and 850, with a higher number being better. The three major credit bureau reporting companies include Equifax, Experian, and TransUnion.
1. Build Your Credit File
If you don’t have many recent accounts in your credit profile, that can negatively impact your credit scores. There’s no magic number, but having at least a few open and active credit accounts in your name can be helpful. For best results, you should have at least one installment loan (car loan, mortgage, personal loan, etc) and one revolving account (credit card, line of credit, etc).
2. Check Your Credit Reports on a Regular Basis
While you’re working on improving your credit scores, it’s important to keep an eye on your credit profile. If you want to take the free route to do this, every consumer is entitled to a free credit report from each of the three major bureaus each year from AnnualCreditReport.com. You could stagger getting a report from each of the three bureaus so that you review one every 4 months.
While using this site is a great free way to track your credit profile, it doesn’t show you any credit scores. Some credit card companies report a credit score from one of the three bureaus to you each month, if you have an active account with them. If you want to monitor your score more frequently, you could sign up for a paid credit monitoring service, like Credit Karma.
3. Pay Bills on Time
It should go without saying, but by all means you should pay your bills and loans on time. If you don’t, it will negatively impact your credit scores. Most lenders have some sort of grace period, but generally if you are more than 30 days behind on payment, it gets reported to the credit reporting agencies. The credit bureaus keep track of this and keep a tally on how many times your are 30, 60, or 90+ days delinquent on accounts. The more times you are late, the greater negative impact it will have on your credit scores.
4. Eliminate Any Past-Due or Collection Accounts
If you’ve gotten behind on bills, taking steps to make them current could help to raise your scores. Once you bring them current and keep them there, that will also stop further late payments from impacting your scores.
You should definitely resolve any collection accounts that you may have. If you are having trouble making payments, it might be worth working with a credit counselor to get on a debt management plan. Credit counselors may also be able to help negotiate lower payments and balances on your behalf with creditors.
5. Dispute Credit Card Errors
Sometimes, creditors make errors when reporting accounts to the credit reporting agencies, especially for those with common names. Review your credit reports for anything that you think might not be right. Common errors include wrong account statuses, inaccurate credit limits or loan balances, and accounts that aren’t yours. Errors on your credit reports could pull your scores down. You should dispute any significant errors with the credit bureau that’s reporting the inaccuracy. A quick search online should help you find the contact information needed to dispute credit report errors.
6. Strategically Pay Credit Card Balances
A good rule to follow for credit cards is to keep your balances low. The lower the better, and a good guideline to follow is to not use more than 30% of your limit on any card. If you sometimes charge more than that on a card, it could be beneficial to pay down the balance to below 30% before the card issuer reports it to the credit bureaus for the month.
If you find that’s it’s difficult to make one large payment each month on a credit card, consider splitting that up into 2 or more payments. For example, if you get paid from your job every two weeks, you could make a partial credit card payment each time you get paid.
7. Negotiate Lower Interest Rates
Check your credit cards to see what your current interest rates are. Some credit cards have higher interest rates than you might think. Since a lower rate could help you payoff your balance sooner, it’s worth asking your creditor to lower the rate. If they say no, make a note to try asking again in a few months or later in the year.
You might also consider a balance transfer to a card with a lower interest rate. If you don’t already have too many credit cards, you might consider getting a new card with a low introductory rate to transfer the balance to. Once you pay it off, you can cancel the card if you don’t plan to keep using it.
8. Ask for Credit Limit Increases
Going back to the guideline to keep your credit card balances under 30% of the credit limits, asking for a higher credit limit is another way to achieve this. If the credit limit is raised and the balance remains the same, it will lower this credit utilization ratio. You can ask your card issuer for a credit limit increase, but some issuers will do a hard credit check for this. If that is the case, it may not be worth taking this hit to ask.
9. Become an Authorized User on Someone Else’s Account
If you are having trouble building your credit profile, maybe because you are young or can’t qualify for your own card, becoming an authorized user on someone else’s account can help build your profile. Parents often do this with their children to help them establish their credit. A parent, who has a good credit history, can request that their child be added as an authorized user. As long as the child doesn’t abuse the card, it shouldn’t be detrimental for the parent.
10. Use a Secured Credit Card or Loan
A secured credit card or loan is good way to help build a credit profile. A secured credit card is typically backed by a cash deposit that is paid upfront. The card limit is usually the same as the cash deposit amount. You could also do something similar for a loan. Some financial institutions will allow you to take out a small installment loan by using a savings account or certificate of deposit as the collateral.
11. Get Credit for Rent and Utility Payments
You may be able to utilize a rent reporting service to add your rent payments to your credit reports. There are several services out there, so you’ll need to do a bit or research to see what your options are. There is also usually a service fee involved with settings these up.
Experian Boost is a popular free service that can be used to report your utility and cell phone payments to the Experian credit bureau. There are also other similar service providers out there.
12. Limit How Often You Apply for New Accounts
Of course you need to open accounts to build your credit profile, but applying for too many accounts can hurt your credit scores. Each time you apply for credit, a hard inquiry is generally ran. Too many of these hard inquiries in too short of a time period can negatively impact your credit profile. If you are “rate shopping” for a car loan or mortgage, for example, credit scoring models generally recognize this and don’t allow it to impact your scores.
13. Add to Your Credit Mix
Having a mix of accounts in your credit profile can help improve your credit scores. For example, if you only have credit cards, it may be worth considering getting a loan if you want to boost your scores. Likewise, if you only have loans in your credit profile, you may want to consider getting a credit card or two to boost your score. While it may not seem intuitive that adding a loan or credit card could improve your scores, if they are paid on time, credit reporting agencies generally look at these favorably.
When it comes to building your credit profile, it’s easy to get caught up on ways to quickly raise your credit scores. The reality is that building a good credit profile can take time. Really evaluate your strategy and the above tips to make sure you won’t do more harm than good in the long run.
If you are looking for some great resources to help your with money management and building your credit profile, check out the following books:
- The Total Money Makeover by Dave Ramsey
- Think and Grow Rich by Napoleon Hill
- The Psychology of Money by Morgan Housel
Check out some of my other posts on saving, making, and investing money:
- Stop Spending and Start Saving $1,000 With a 90 Day Saving Money Challenge
- How to Save $1,000 for an Emergency Fund in 90 Days or Less
- 7 Steps to Create a Personal Budget
- Financial Checklist: 10 Things to Do Before Year End
- 7 Habits of Successful People Who Are Never Broke
- 17 Ways to Save Money This Fall
- 5 Websites to Make Money With Print on Demand
- Why Should I Invest in an IRA?
Disclaimer: This information is intended for educational purposes and is not tailored for the needs of any specific investor. It is important to conduct your own analysis and research before making any investment. It is recommended to independently research and verify or seek financial advice from a professional in connection with any information on this website before using it to make an investment decision or otherwise.