There are plenty of people out there just like you who are looking for quick and effective ways to improve their credit scores. Tens of millions of people in the United States have credit inquiries severe enough to make getting loans and credit cards with reasonable terms and interest rates incredible difficult. You may also be one of those where your credit is good, but you want to make it excellent! Why wouldn’t you after all, because the better your credit score the less you will have to pay in interest and insurance. Yes, even insurance companies may take a look at your score in determining your premium.
So if you’ve had a few problems paying your bills lately, and you’re wondering what you can do to repair the damage to your credit. Join the club!
Ready to quickly make a boost to your credit score?
To improve your credit score you must know where you are currently standing. You are entitled to a free credit report once a year, but you typically have to pay a fee to see your FICO scores. If your score is above 760, you are most likely already getting the best rates. If you are anywhere below that, you will want to look into making some improvements.
1. Simply, Get a Credit Card If You Don’t Have One
I know a lot of people that assume they are establishing credit with their ATM debit card that has a Visa or Mastercard logo, however this is not the case. You need to apply for a real credit card With your ATM debit card you can pretty much only spend what you have in your account. So, this isn’t an accurate measure of how you’re able to manage money in the form of credit… which is what a score is representing… the ability to pay back borrowed money. However, don’t fall for the myth that you have to carry a balance to have good scores. I have personally never carried a balance on any of my cards and my score is excellent. Having a using a credit card or two can really build your credit score.
If you are a student, look into credit cards that have a low limit available to first time card holders just like you. My first card was a Visa card with a $400 limit. I still have that card today and keep it in my car as a backup for emergencies. If you can’t qualify for a regular credit card then you’ll have to get a secured credit card. There cards will give you a credit line that’s equivalent to the deposit you make. The most important part here is that the card reports to all three credit bureaus.
2. Add an Installments Loan to the Mix
There are two major types of credit to consider; revolving and installment. You’ll get the fastest improvements to your credit score by showing that you are responsible in both categories. Revolving credit you’ll be establishing though your credit cards. Installment you’ll establish through auto loans, student loans, mortgages, and personal loans. If you currently do not have an installment loan on your credit reports, consider adding a small personal loan that you can pay back over time. Again, be sure that the loan is being reported to all three credit bureaus. Check with a community bank or a credit union, as you’ll probably get the best deal from one of these places.
3. Pay Down Your Credit Cards
Lenders like to see a significant difference between the amount of credit you’re using and your available limit. It’s always best to keep your balances below 30% of the credit limit on each card. Getting balances below 10% is ideal. The only downfall to doing this in when you want to request an increase to your credit limit and they look at your account, although it’s in good standing, they say something like… “you’re not even using what you have so why do you need an increase?” This becomes a problematic situation for which the only solution is denied by a circumstance inherent in the problem itself. This gets into a more advanced topic that we’ll discuss in a later post.
Most credit improvement services will recommend paying off the highest-rate card first, which is surely the best strategy to save more money. However, in the context of this article we’ll stay true to the goal of quickly improving your score… which will be to pay down the cards that are closest to their limits.
4. Use Your Credit Cards Lightly
This gets a little tricky, especially since I use my credit cards for everything… so I get points! Let’s just say my debit card I had in my wallet expired almost two years from when I finally replaced it with the new one. Racking up big balances can hurt your scores, regardless of whether you pay your card off in full each month. This is where getting the highest credit limit possible becomes advantageous, because what’s typically reported to the credit bureaus for calculating out your scores are the balances reported on your last statements.
If you have trouble keeping track of your spending, don’t be ashamed… that’s why you’re probably here in the first place. Just setup an email or text alert with your credit card company to let you know when you’re approaching a limit that you have set (either the 10% or 30%). If you commonly use more than half of your limit on a specific card, consider using another card that has a lower balance. What I do from time to time if I’m putting large purchases on a card, is to make a payment before the statement closing date to reduce the balance that’s reported to the bureaus. It’s a simply trick that one should keep in mind when needed. Also, don’t forget to make that second payment between the closing date and due date. You surely don’t want to get reported as being late, because that’s defeating the whole purpose of all of this. What may happen if you make a payment after the closing date is that it will satisfy the minimum payment, therefore stating you don’t have a payment to be made. This is their sneaky way to get you to carry that balance over so they can charge you interest. Always pay off the statement balance, even when you are making small early payments to bring the balance down.
5. Check Your Limits
If your issuer has a policy that does not require them to report consumers’ limits, the bureaus may use your highest balance as a proxy for your credit limit. Your scores may end up being artificially depressed if your lender is showing a lower limit than you actually have. Most credit card companies will quickly update this information, but you may have to ask them to do so.
For those who you an American Express charge card, you won’t have to worry too much, because those types of cards in which you have to pay the balance in full each month are typically not included in the credit utilization portion of the FICO formula used to calculate your scores.
6. Start Using an Old Card
I’ll start off by saying, never close an old credit card. Like I mentioned before, I still have my very first credit card and use it from time to time for the strategic reasons as follows. The longer you have had a card with credit history the better. Don’t completely stop using your old credit cards, because what may happen is the company may close the account (which happened to me with my Chevron gas card) or they may just stop updating them to the credit bureaus. They accounts may still appear in your report, but they won’t be given as much weight as they should in the credit-scoring formula as your active accounts. The easiest solution is to charge recurring bills to this card and having it automatically set to pay in full each month. Ideally, you’ll want all your cards eventually to be setup this way.
7. Ask For a Goodwill Adjustment
It never hurts to ask, and you have absolutely nothing to lose. If you’ve been keeping up with your payments, a lender might agree to simply erase that one late payment from your credit history. It happens all the time, so why not let it be you. You’ll usually have to make the request in writing, and if they deny your request the first time keep asking every 6 months with your continued timely payments.
8. Dispute Old Negatives
You can get as creative as you’d like here when disputing anything that has gone to collections. Some consumers may dispute old items with a company that has merged with another company, or had been bought out after the financial crisis. These types of acquisitions leave company’s records in a disarray where they don’t have the ability to dispute it. Anytime an unfair bill has resulted in a collections account you should protest the charge, or try disputing with the credit bureaus that it wasn’t yours. You know… because it was your significant other who was living with you at the time. The smaller the collection amount the better it is for you, because it’s just not worth the time of the collection agency to verify it when the credit bureau investigates the dispute.
9. Correct Significant Errors
Your credit score is calculated based on the information in your credit reports, so certain errors there can really have an adverse effect and cost you in the long run in increased interest charges. Your report is comprised of many types of inquiries, however here are the ones you should spend your time correcting to see the best improvements with the least amount of effort.
- Late payments, collections, charge-offs, or any negative inquiries not belonging to you
- Accounts showing as anything but “Current” or “Paid as Agreed”.
- Credit limits reported as lower than they actually are.
- Negative items older than seven years that should have automatically been removed.
- Accounts that are still listed as unpaid that were included in a bankruptcy
