Will these tips fix your score immediately? Maybe not, but they won't hurt!
Having a bad credit score is kind of like having a serious nut allergy. People wouldn’t know it to look at you, but there are a whole bunch of things that this condition is holding you back from doing.
With a nut allergy, it might be eating certain types of candy bars or a nice PB&J sandwich. With a bad credit score, it’s taking out a personal loan or a credit card that doesn’t require a cash deposit.
Either way, both these things put real limits on the kinds of decisions you can make. Luckily, while a nut allergy is something you’re pretty much stuck with, a bad credit score is something you can fix.
For someone who has a mediocre credit score—say it’s in the 670 range—raising their credit score is pretty easy. But if you have bad credit, like a score that’s 630 or below, rebuilding your credit is going to take a lot more effort.
But just because it’s hard, doesn’t mean it isn’t worth doing. Your financial well-being is worth it. If you’re looking to raise your credit score, here are some valuable tips.
1. Check your credit report and dispute any errors you find
This step is a lot like filling up your gas tank before going on a long car trip. It’s kind of a no-brainer, but it’s also absolutely necessary. Skip this step, and you’re not going to get very far at all.
Jeff Hunter is the Editor of Simple. Thrifty. Living., a personal finance site. He says that “More than 42 million people in this country have errors on their credit report, and 10 million of those have errors that affect their credit score.”
He recommends that you “Make sure you are regularly checking your credit report to make sure there are no mistakes and that you haven’t been a victim of identity theft.” You can read more about identity theft in our post 3 Identity Theft Warning Signs.
But who wants to spend money just to order a copy of your credit report? No one, that’s who. That’s why it’s so great that you won’t have to pay a dime!
“You are entitled to one free credit report per year from each of the three major credit reporting bureaus, so you should be able to order one every four months,” says Krystal Rogers-Nelson, a freelance writer and contributing Safety & Security Expert for ASecureLife.com.
“It won’t 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.”
To order a free copy of your credit report, just visit www.AnnualCreditReport.com.
2. Make your payments on time
There are five different categories of information that the FICO corporation uses to create your credit score. Of those five, the most important one is your payment history. It makes up a whopping 35% of your total score.
“The most important thing to remember is to keep your credit report clean from here on out,” says Hunter. And if you’re serious about a clean report, paying your bills late is not an option.
First, this will mean automating as many bills as you can. If you can outsource the hassle to an e-bill, then go ahead and do it. Just make sure that you check in at least once a month to make sure everything is going smoothly.
Second, this will mean budgeting your money properly so that you always have the funds in your account when a bill comes due. An e-bill doesn’t do you much good if it’s zeroing out your account and racking up overdraft fees.
(Just make sure that your zeal for on-time bill payment doesn’t lead you to take out a payday loan in order to make ends meet. The potential debt trap that awaits you just won’t be worth it.)
When it comes to your credit score, improving your payment history is a bit of a long game. Most information stays on your report for seven years, so it’ll take awhile for the old bad info to drop off.
Don’t worry. though. The wait will be worth it.
3. Pay down your debt, and do it as aggressively as you can
When it comes to fixing your credit score, “Your “Payment History” and the “Amount Owed” categories make up 65% of your FICO Score calculation, so those are the categories you should focus on first,” says Rogers-Nelson.
Paying down your debt is critical to improving your score, but it can also feel like one of the most overwhelming obstacles to good credit. That’s why you should start small. Going too big too fast is a surefire way to fail.
“Make sure you are paying the minimum balances every month,” says Rodgers Nelson, “then make adjustments in your budget to increase your payments, even if it’s only $5 or $10 per month. If you can, start making two payments per month.”
Once you get comfortable with your debt repayment, you can start getting more aggressive. Remember, the faster you pay down your debt, the faster you’ll see your score start to rise.
A truly aggressive debt repayment plan is going to require three things: a strict budget, an extra source of income, and a plan.
To start earning some extra cash, read these six expert tips for getting your side hustle going, then peruse our list of 10 awesome side hustles for quick cash.
4. Use your credit cards responsibly
As you pay down your debt, it’s important that you try and use your remaining credit cards in a smart and strategic manner.
“Credit cards can help you build your credit, but the key is to show that you can manage them responsibly,” says Rodgers Nelson. “Keep your balances low on credit cards–set a limit for yourself on spending to make sure you are not going over budget–and pay your balance in full every month.”
The unique thing about credit cards is that they carry a one-month grace period before interest starts to accrue on any purchases that have been made. Paying off your credit card balance in full every month ensures that you’ll get all the card benefits–like points and rewards–without paying any extra money.
Basically, never spend money on your card that you don’t already have in your bank account. So long as you always have the money to pay off your balance you’ll never be in danger of racking up additional debt.
Rodgers-Nelson has some other great credit card tips:
“Make sure you’re not maxing out your credit limit every month; shoot for no more than 30% credit utilization ratio. 10% is even better. This means that if your credit limit is $2000, your spending would ideally be between $200 and $600 per month.”
The great thing about your credit utilization ratio is that, as old credit card debt is paid off, you should start to see those old cards slip to levels where your score will be positively affected.
Two last quick tips for raising your score
- “This may seem counterintuitive,” says Hunter, “but canceling credit cards actually lowers your credit score. Part of your credit score is based on how much credit you utilize (your credit utilization score), so the more credit you have available, the higher your credit score.
- Hunter has one last seemingly counter-intuitive tip: raising your credit limits. This is another way to try and improve your credit utilization ratio. Instead of only paying down the balances you already have, you could contact your credit card company and request that they raise your total credit limit. If you have a good history with the company, they’ll be pretty likely to agree!
Don’t let your bad credit get you down. Instead, get serious about fixing it. Raising your credit score 50 points is totally doable–even if won’t happen overnight.
Jeff Hunter is the Editor of Simple. Thrifty. Living. and is an avid believer in personal finance education, especially for children and young adults. He started his career as a business journalist, where he decided to focus on personal finance. Since then, he has focused his overall personal finance education on all things credit and savings. As Editor of Simple. Thrifty. Living, he feels he can reach everyday readers who have questions about smarter ways to handle their money.
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The information contained herein is provided for free and is to be used for educational and informational purposes only. We are not a credit repair organization as defined under federal or state law and we do not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit. Articles provided in connection with this blog are general in nature, provided for informational purposes only and are not a substitute for individualized professional advice. We make no representation that we will improve or attempt to improve your credit record, history, or rating through the use of the resources provided through the OppLoans blog.