How To Fix Your Credit Score
If you’re interested in the details of how to fix your credit score, we’re here to shed light on the subject.Do you have a bad credit score? If so, you’ve got lots of company.
An estimated 30% of Americans have bad credit, including people with good incomes. A bad credit score isn’t something you can just brush off. Banks use them to decide whether to give you personal loans or mortgages.
Credit card companies use them to determine whether to give you a credit card, not to mention what interest rate to charge. Even people who want to do damage control on their credit scores are often unsure what they should do. Getting a handle on how credit scoring works will help you with the big picture.
It can be done. It just takes some time and a bit of careful financial management.
Let’s take a look at some tips on how to fix your credit score.
Tip 1: Trim Credit Card Balances
Credit bureaus hate high balances on credit cards. Hate them. They’ll ding your score hard, even if you only have a high balance on one of several cards.
High utilization reads like risk to the credit bureaus. Almost any reduction of a high credit card balance will improve your score. Getting it down to the recommended 30% may well be one of the fastest answers to how to fix your credit score.
Tip 2: Pay Bills on Time
Credit scores give a lot of weight to your on-time payment percentage. If you’ve got a track record of late payments, that hurts your score now. That percentage will keep hurting your score until you get it close to 100%.
Every bill you pay on time improves that percentage by tiny increments. This is one that takes patience, but disciplined bill payment will improve your credit score over time.
Tip 3: Settle Collections
Any open collections on your credit report damage your score. Get in touch with those creditors and see what they have to offer. Most will offer you a payment plan of some kind or a reduced payment to close it immediately.
Paying off collections in full is the best case scenario for your score. That said, settling the debt for some lesser amount and getting the collection closed is better than leaving it open.
Tip 4: Fix Errors on Your Credit Report
Just because something appears on your credit report, it doesn’t make it true. Approximately 20% of credit reports are believed to contain errors. These errors can cost you in terms of your overall credit score.
Make a point to review your credit reports and ask the bureaus to remove any errors. This can lead to an immediate boost to your credit score.
Tip 5: Get a New Line of Credit
The credit bureaus want to see that you can handle multiple forms of credit.
If your main form of credit is credit cards, look into taking out a personal or automotive loan. If you’ve never had one before, get a credit card.
Getting new credit can be tough if your score is shaky. A secured credit card is one way to get a new line of credit. You basically deposit a set amount with the credit card company and they give you a credit line in that amount.
The new line of credit lets you improve the mix and make on time payments. It’s a double bonus for your score in the long term.
Tip 6: Limit Your Credit Applications
Every time you apply for credit, the lender performs a hard inquiry. Each hard inquiry puts a little dent in your score. The occasional hard inquiry is both fine and expected.
If you apply for a bunch of credit at the same time, it hurts your credit score a lot more. You look like you’re in financial trouble, and the credit bureaus adjust your score accordingly. 0-1 inquiries per year is ideal, though 2 per year won’t send up any red flags.
Tip 7: Keep Existing Accounts Open
You might be tempted to close credit card accounts you don’t use. Don’t do that. Those credit cards with no balances improve your overall utilization score. That makes you look better to the credit bureaus and boosts your score.
Tip 8: Authorized User Status
Another way to boost your score is to find a very kind person with great credit that will let you become an authorized user on one of their credit cards. When the credit card company issues you a card, it goes on your report. You glean the benefits of the other person’s good credit and on-time payments.
If you do find someone willing to do this for you, the best thing you can do is put that card in a lockbox and forget it exists.
Tip 9: Pay Twice Monthly
Credit card companies report balances every month, but that day is probably not your bill due date. If your card company reports on the 21st of the month, and your due date is the 25, you’ve probably racked up some charges by then. It looks like you’re constantly carrying a higher balance.
Paying out smaller amounts twice a month keeps your balance at a more representative level when the company reports it.
Tip 10: Up Your Credit Limit
A credit limit increase lowers your credit utilization score without needing to pay down the balance. This approach works best when you aren’t likely to use that additional credit. You’ll also need to be on good terms with your credit card company to get them to agree to the increase.
Not every method discussed above will work for everyone. In fact, deciding how to fix your credit score will depend on your circumstances.
If you’re just starting to repair your credit, increasing your credit card limit is probably out of reach. Furthermore, if you’ve been working steadily on credit score repair, a secured credit card won’t make sense.
What does make sense is working to improve your credit score. It always benefits you.
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