Guide to Improving Your Credit Score
Having a high credit score – say, 750 or above – can help you get the best deals on everything from personal loans and insurance to mortgages. You can take specific measures to improve your credit score, but the key is to constantly track your expenses and limit your debts to make sure you are not living beyond your means.
How is My Credit Score Calculated?
Your credit score comes from several pieces of data in your credit report, so try to review the report regularly to make sure it's accurate, fair and complete. The top three credit reporting agencies – Experian, TransUnion and Equifax – regroup credit data pieces in five categories, which are allocated respective analytical weights: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and types of credit used (10%).
For example, the FICO Score Simulator allows you to estimate your credit score by running several scenarios, including initiatives that generally hurt your credit score, those that improve credit, and things that could damage your creditworthiness.For each scenario, you can simulate your credit score, and, for a small fee, the tool also allows you to simulate your best course of action, telling you the single most effective action you can take to improve your credit score and how high your new score might be.
How Do I Increase My Credit Score?
Improving your credit score might take time, especially if your current score is in the subprime category – meaning a FICO score that is less than 640. Using specific techniques while living within your means can help increase your FICO score over time.
1. Add a new loan to your debt mix.
Major debt categories, such as personal loans, student loans, auto loans and mortgages, show lenders that you're responsible with credit. Add a small personal loan to your debt mix, and try to make the monthly payments as religiously as you can, even adding a few extra dollars to the minimum payment every now and then, if possible.
2. Get a credit card if you don't have one.
Besides major debt categories, credit cards are the credit element potential lenders pay attention to. You can boost your credit score by having and using one or two credit cards, ensuring that you make the minimum payment on time. If you don't qualify for a regular credit card, talk to your bank and ask if you can get a secured card, whose credit limit will be equal to the deposit you make.
3. Pay down your credit cards
Reducing your overall credit card indebtedness can help improve your FICO score. Paying revolving accounts, such as credit cards, has a higher positive impact on your credit score than paying installment accounts, such as auto loans.
4. Use your cards lightly
Don't max out your credit cards because potential lenders might interpret a high usage – meaning the total amount owed divided by the card limit – as a sign of financial mismanagement or, worse, a symptom of imminent financial trouble. A debt management expert I recently interviewed recommends a 30% usage, but anything lower is even better.
5. Check your limits frequently
Lenders may report inaccurate credit limits or credit lines that are actually lower than what you have. A lower credit limit would result in an artificially higher usage percentage, so fixing the limit can help boost your FICO score. For example, if you carry a $300 balance on a card with a total limit of $1,500, your usage ratio equals 20%. But if the lender mistakenly reports your credit limit at $1,000, your new usage ratio would jump to 30%, a higher metric that invariably would lower your credit score.
Who Can Help Me Fix Credit Issues?
Many professionals can help you with credit score improvement or, at least, fix whatever issues are keeping it low. If your credit report shows inaccurate or incomplete information, you can file a complaint with the Federal Trade Commission.
You also can reach out to your state's attorney general office or the Local Better Business Bureau branch to learn more about organizations providing credit repair help. Visit the Local Better Business Bureau Location Guide for more information.Another route is to contact the credit reporting agencies directly – in writing, over the phone or online – clearly state the item under dispute, back up your claim with proof, and let the agencies investigate the claim and get back to you.
Improve Your Credit Score with a Credit Repair Service
Those with a low credit score can have a tough time getting a loan or credit card. Bad credit can also affect your ability to rent or buy housing, as well as your job prospects. The good news is, there are lenders who specialize in loans to those with less than perfect credit.
The bad news is that higher interest rates await those with bad credit. If you have a low credit score and want to take out a loan, it's worth boosting your credit rating before applying. You can enlist the aid of a credit repair service that can help you improve your credit score and get back into the game.
It's also worthwhile to analyze the reasons you have a lower credit score than you'd like. Here are four key areas to consider in your quest to improve your FICO score.
What's in Your Credit Report
Have you had a look at your credit report recently? Do you know your credit score? If not, it's time to take advantage of your right to view a free copy of your credit report. Consumers are entitled to a free credit report each calendar year. You'll then know what potential lenders see, including your credit score. If there are any fraudulent activities or errors on your report, either you or a credit repair agency can file a dispute.
Make Timely Payments
Paying your bills on time helps your credit score. Create a schedule of your monthly payments and their due dates. Setting up automatic payments helps if you are prone to missing payments. You can also make small payments on a frequent basis, managing cash flow and improving your score.
Use of Available Credit
If you max out your credit card, spending up to the available credit limit, it has a negative impact on your credit score. Experts recommend your credit utilization ratio be 30% or less, and indeed that 10% or less is ideal. Even if you pay your balance on a monthly basis, charging more than 30% of your credit limit has a bad effect on your score.
Closing Credit Accounts
Have you closed any credit card accounts recently, perhaps a card you stopped using? Your credit score takes a hit when you close accounts. Even with a card you rarely use, it's best to keep the account open. An open account with small payments over time looks good and raises your credit score.
Top Credit Repair Services
Highly rated Sky Blue Credit Repair gets an A+ rating from the Better Business Bureau (BBB), and has a great track record of success.. They offer free consultation to get started and a 50% couples discount. Customers must pay an additional outside fee to provide credit reports to Sky Blue, which can add up.
Lexington Law credit repair maintains a team of attorneys and paralegals on staff to go to bat for you. While they are slow to respond to emails, they also offer online chat and are one of the best in the business when it comes to producing results.
Improve Your Credit Score Recap
Having a high credit score is a great financial tool for many of life's more expensive purchases. An effective credit score improvement process helps you figure out how a credit score is calculated, factors affecting your score, where you can seek professional help, and effective ways to increase your credit score – and keep it high over time.