Tips to Improve Your Credit Score
The fable of the tortoise and the hare applies well when discussing how to improve your credit score. The race is not to the swift. You’ve probably built up a long credit history showing both a constant attention to your finances and also lapses and mistakes. It will take patience above all to improve your credit score.
You aren’t alone in piling up debt. The Federal Reserve notes that as a nation, our debt is astronomical. Debts on expenditures like mortgages and student loans are in the trillions of dollars, over $8 trillion for home loans. Credit card debt and car loans aren’t much less at around $1 trillion each.
This debt is rising due to the cost of living rising faster than real wages. We have medical bills and many of us need a car but we don’t have sufficient insurance or can’t pay cash. Many of us, especially younger singles and families, are carrying record amounts of student loan debt. We must also consider the psychological factors driving debt, like living in a consumer-driven economy that promotes grabbing the latest, expensive high-tech items.
The discussion of how much debt we carry is important because reducing debt is one of the best ways to improve your credit score. We’ll discuss this in depth in this article along with additional methods to improve your credit score.
Pay down your debt. Some credit card companies and other lenders report your monthly balance to reporting agencies. The agency observes your total debt and compares it to your available credit when assessing credit worthiness. The lower ratio of debt to available balance, the higher you are rated. Bankrate.com suggests trying to keep a 30% ratio, while author and credit expert Beverly Harzog suggests a 10% ratio.
So try not to rely on credit cards for everyday expenses. Instead of paying the cable bill from the checking account and, well, everything else with credit, switch it up. There’s a good side-effect of this technique of raising your credit score; better money management.
Reduce the amount of credit in your name. You may have several loans out, including your car, home and perhaps a line of credit for your own business. You don’t need several credit cards as well. You may have opened several small accounts in an effort to show you can be timely and manage credit card payments. You need to close most of those accounts if you have more than two or three. Credit agencies look at how many different debts you have in your name as well as your amount of monthly debt.
There is a counter argument to this method of increasing your credit score. Closing several accounts at once may make it appear as if you are a credit risk, perhaps undergoing some kind of financial hardship.
Stay on time. Creditors abhor tardiness, at least from customers. According to a Forbes article, payment history, including late and missed payments, makes up 35% of your credit score. Manage your budget so that you are sure to never skip or be late with a payment. Try to set up an automatic withdrawal from a checking account or debit card so that you can be sure payments are timely.
Ask nicely. There are some things you can do to improve your credit score by asking creditors directly. You can ask your credit card companies to increase your available credit so that you will have a lower debt ratio. You can ask credit card companies to remove previously reported late payments. You only have a chance of success with these methods if your overall credit history is good, and you have a long history with the banks or lenders.
Whatever deal you manage to negotiate with notoriously stingy lenders, you absolutely must get a signed document of some kind stating that the creditor agrees to do what they told you over the phone.
Get a credit report. If you’re concerned about improving your credit score, this may seem like a no-brainer. You can’t work on your score if you don’t know what’s in the credit report. There may be disputable errors in your credit report, such as an account appearing on your report you never opened or someone requesting credit in your name.
The dispute process takes time. Lately, reporting agencies allow you to dispute your credit report online. Yet, don’t be in such a hurry to resolve the matter. You need to collect documents to prove they are wrong, and you will spend time going back and forth with them in conversation. Always send copies of your original documents and keep an organized file of any case.
Piggyback on a better credit report. You may be able to get a family member to include you as an authorized user on their credit card. If you manage to convince the person to make this happen, don’t use the card when you get one in your name. If they’re responsible, let their responsibility help you in turn. In one way, this is like establishing another line of credit, even though it’s with a family member. Use it only as a last resort because if you mess up, you’ll be damaging another person and your relationship with them.
Be patient. The battle to improve your credit score will be a long campaign. If you are trying to raise your score to make a particular purchase, like a home or car, you need to start early. Give yourself several months, perhaps even a year. This will also give you time to save additional money to pay off accounts or whittle them down to near zero. It will also give you time to develop habits that will improve your credit score in the long term.*
*This article provides broad and general guidelines and does not constitute professional financial or legal advice. You should not use this article as a substitute for your own judgment, and you should consult professional advisers before making any tax, legal, financial planning or investment decisions.