Real World Credit Score Mending
Fixing credit quickly and easily exists in the same world that losing weight quickly and easily does. The imaginary one. Unfortunately, the one and only way to improve a credit score is through time, patience and consistent discipline. Below are the first steps one should take when working on improving their score, as well as some general information on how to better your score responsibly and with the long-term in mind. First thing’s first:
- Request a free copy of your credit report from trusted companies like Equifax, Experian or TransUnion. Your report will contain the data that was used to calculate your score; check it for errors. Keep an eye out for late payments that are incorrectly listed and the amounts owed for each of your opened accounts. If you find errors, dispute them with the credit bureau and the reporting agency.
- Consider monthly payment reminders. Making your credit payments is the biggest contributing factor to your credit score. Some banks offer payment reminders through their online banking portals which you could setup for monthly reminders. Also, consider enrolling in automatic payments through your credit card and loan providers to have payments automatically debited from your bank account.
- Reduce the amount of debt that you owe. Use your credit report to make a list of your open accounts so you can go online and find out how much money you owe and the interest rate on each account. Come up with a payment plan that puts most of your available budget towards your debt payments, making your focus paying off the account with the highest interest rate first while maintaining at least minimum payments on the rest.
How to improve your score vs. hurt your score:
- HOW TO IMPROVE: Consistently pay your bills on time; pay your monthly balances in full; check your credit card regularly for accuracy; if you choose to borrow, keep your account balance around or below 50% of your available credit.
- HOW TO HURT: Fail to make even the monthly minimum payments on any loan or credit cards; exceed your account limits; file for bankruptcy or get your account turned over to a collection agency; apply for a lot of credit.
What makes up a credit score and how can you take care of each section responsibly? Payment History: The below contributes 35% to your credit score and has the greatest effect on improving it.
- Pay your bills on time
- Get current with any missed payments and stay current. The longer you pay your bills ontime after suffering from a bad spell, the more your score will increase. Older credit card problems count for less, so just hop back on the wagon and don’t get off; eventually you’ll replace the bad with good.
- Be aware that paying off a collection amount will not remove it from your history; it will stay on your history for 7 years. So stay on track as much as possible.
- Seeking help does not lower your score! If you are struggling financially, contact your creditors or seek guidance from a credit counselor. Again, this is not a quick fix, it will take time. Learning how to manage your credit will help you in the long-term.
Amounts Owed: This section counts for 30%.
- Keep balances on credit cards low.
- Pay off debt instead of moving it around. In fact, owing the same amount but having fewer open accounts may lower your score. That said, paying down your credit card debt is the most effective way to raise your score in this area.
- Don’t close unused credit cards as a short-term strategy to raise your score.
- Don’t open any unneeded, new credit cards just to increase your available credit. This will eventually lower your score.
Length of Credit Card History: This section counts for 15%.
- If you’re new to the credit world, don’t open a lot of new accounts too quickly. When you don’t have a lot of credit information, new accounts will lower your average account age, which will have an effect on your score. Also, rapid account buildup will look risky for new credit users.
Types of credit in use: This counts for 10% of your credit score and is referring to your outstanding credit accounts including credit cards, installment loans, mortgages, etc.
- Apply for and open new accounts only as needed.
- Don’t be afraid to have credit cards, just be sure you can manage them responsibly. Having credit cards and paying them off responsibly and consistently will build your credit score. For example: Someone with no credit cards would be considered a bigger risk than someone who has credit cards and is paying them off responsibly.
New credit accounts and inquiries: This counts for 10% of your credit score.
- Do your rate shopping for a loan within a focused period of time.
- If you’ve had credit problems, re-establish your history by opening new accounts responsibly and paying them off on time. Please keep in mind that if not done responsibly, this could have the opposite effect.
- Checking your credit report will not affect your score as long as you order your credit report directly from the credit reporting agency or through an organization authorized to provide credit reports to consumers.