Having a less-than-ideal credit score can have some very impactful real-life consequences. It can mean it's more difficult to be approved for a mortgage or car loan, you'll pay higher interest rates when you do borrow money, and it can ultimately affect your ability to begin building wealth.
Beyond that, a bad credit score and a credit file filled with derogatory marks can even make it difficult to rent an apartment, it can increase your insurance premiums, and it might affect your career opportunities.
If your credit score has seen better days, there are a number of credit repair hacks you can use to help increase your score and improve your credit profile. The important thing is to understand which elements are hurting your credit score the most so that you can start addressing the factors that are most adversely impacting your score right away.Without further ado, let's jump in to help you determine the best actions you can take to improve your credit.
One of the most important things you can do to ensure that your credit score is where you want it to be is to check your credit report regularly.
There are three major credit reporting agencies-- Experian, Equifax, and TransUnion. At each bureau, you have a credit report.
It's worth checking all three credit reports because not all creditors report to all three credit bureaus.
You can receive a free credit report from all three agencies through the Federally authorized site AnnualCreditReport.com.
Your credit score is calculated using your credit report. You can find out what your credit score is through a soft inquiry using one of the major credit scoring websites. Some credit card issuers also provide credit score tools.
The Federal Trade Commission reports that 25% of people have had errors on their credit reports. You, therefore, shouldn't assume that errors and inaccurate information are in any way rare, and you should always keep an eye out for accounts or other info that isn't correct.
If you do find any errors on your credit report, you'll want to remove them right away. You can dispute errors on your credit report at all three bureaus. The easiest way to do so is by using their online platforms for disputing credit report errors.
Sometimes, there's negative information on your credit report that is accurate. Whether it's a collections account, missed payment marks, or another derogatory mark, it isn't always possible to remove negative information from your credit report. However, since this type of info can be detrimental to your credit, it's always worth giving it a shot.
Has a creditor written off your debt? Learn how to remove charge offs from your credit report in this guide.
If you have a missed payment on your credit report, you can ask your creditor for a goodwill adjustment. They aren't obligated to remove correct information from your report and will sometimes argue that they are bound to report accurate info to the credit bureaus.
Is your credit damaged because your identity was stolen? Check out our post on how to repair your credit after identity theft and fraud.
Having a collections account on your credit report can have a negative impact on your credit score. If a past debt of yours has been sent to collections, you can try and negotiate with the collections agency through what is known as a pay-for-delete agreement.
Make sure you receive their end of the bargain in writing before making a payment if you do strike a deal with them.
Your payment history is the most important component of your credit score when calculated using either of the two most popular credit scoring models-- FICO and VantageScore. In a FICO credit score, your payment history accounts for 35% of your score, and it makes up about 40% of your score in a VantageScore credit score.
Of course, never missing a payment is easier said than done. However, there are a few steps you can take to ensure that you get a derogatory mark for missed payments and to help keep your credit score as high as possible.
There are few things as frustrating as missing a bill payment simply because it slipped your mind. One of the best things you can do for your credit is to set up automatic payments. This way, you can remove human error as a factor when it comes to making payments on time.
If you do realize that you had a bill due recently and you didn't have automatic payments set up, don't panic.
If possible, make any missed payments before thirty days have gone by to ensure that it doesn't decrease your credit score.
If you missed a payment and have been charged a fee, consider calling your creditor and asking them to waive the fee.
While this fee doesn't impact your credit score, you want to make sure that you aren't paying any money unnecessarily that could otherwise be going toward paying down your debt.
Your credit utilization ratio accounts for 30% of your FICO Score calculation and 20% of your Vantage Score calculation.
When it comes to credit utilization ratios, lower is always better. Experts advise that you work to keep your credit utilization ratio below 30%.
There are a number of things you can do to make sure your credit utilization ratio is as low as possible, including paying down your debt, increasing your credit limit, timing your payments, reducing spending, and more.
Paying down your debts will mean that you are using less of the credit that has been extended to you, reducing your credit utilization ratio.
Your credit utilization is a ratio that represents the percentage of your credit limit that you're using.
If you want to increase your credit score quickly, paying down debt (and not taking on new debt) can help your score improve dramatically.
Paying off high-balance cards is one of the fastest ways to lower your credit utilization ratio.
Beyond your overall credit utilization ratio, there is also something known as a line-item utilization ratio.
For this reason, it can make sense to pay down high-balance cards first.
Another important factor when it comes to your credit utilization is the number of accounts you own that have balances. Your score will benefit from having fewer accounts with balances.
If you want to boost your credit score, consider paying down your low-balance accounts to reduce the total number of accounts that are carrying a balance.
Another way to ensure that you aren't carrying a balance on too many accounts is to consolidate your debt.
Beyond that, debt consolidation can help you pay off your debt more quickly when you snag a lower interest rate. It can also be much simpler to manage debt when you are only making one payment instead of many.
Important note: While debt consolidation can be a powerful tool to reduce debt and increase your credit score, you have to use it carefully. If you end up running up debt on your original cards again in addition to the balance transfer card debt, you can find yourself in a deeper hole than you initially started in.
Lowering your interest rates on your existing credit cards won't directly impact your credit score. However, the less interest you pay on each card every month, the faster you will be able to pay down your debt.
The worst that could happen is they say no. If they do say yes, it could save you hundreds or thousands of dollars in interest.
One of the fastest and easiest ways to boost your credit score is to increase your credit card limits. That being said, there are a few things you'll want to consider before you ask your issuers to increase your limit.
Since your credit utilization ratio is a number that relates how much credit you have available to the debt you owe, increasing your credit limit can lower your credit utilization ratio quickly and easily in a way that improves your credit score.
Once you've paid off old cards, it's best not to close the accounts in most cases.
In some cases, though, it might make sense to close old cards.
For example:
Additionally, if you have really struggled with overspending, you might find it is worth closing old accounts so that you aren't tempted to rack up more debt.
It's reasonable to assume that by simply paying off your cards each month, your credit utilization ratio should stay low. However, it's also important to consider when creditors are reporting to credit bureaus.
Creditors and lenders will run a hard inquiry every time you apply for credit or a loan.
Additionally, new card accounts can lower the average age of your accounts, which can also negatively impact your score.
Another way you can build credit is through a method called credit piggybacking. The most common way to improve your credit by associating yourself with someone else's credit is to become an authorized user, but you can also open a joint account or find a co-signer for a loan.
One of the fastest ways to build credit is to become an authorized user on a seasoned tradeline.
When you become an authorized user on someone else's account, it can quickly add years of credit history to your report.
Though there aren't many issuers that offer joint credit cards anymore, it's possible that you can benefit from your partners' good credit by opening a joint account.
If you need to take out a loan but you have less than ideal credit (or very little credit history,) finding a co-signer can be a very useful tool. Though it can be difficult to find someone to take on this role, a co-signer can help a primary borrower build credit over time so long as they make on-time payments.
If you have no credit or a very limited credit history, it can be difficult to know how to start building credit. In these instances, a credit builder loan can help individuals build credit and boost their scores when they make regular, on-time payments.
If you are what is known as "credit invisible"-- i.e., you don't have a credit score-- this is a method you can use to gain additional access to financial services and products.
Another loan you can use to help rebuild credit after it's been damaged is an installment loan. I've personally used this type of loan to improve my credit.
If you are going to shop around for a loan or a new credit card soon, you'll want to be thoughtful about adding additional hard inquiries to your credit report.
While each hard inquiry usually only takes a few points off your credit score, too many of these on your report can be a red flag to lenders.
For mortgages, auto loans, and student loans, inquiries that occur during a fourteen day window are considered one single inquiry. This is because it is understood that savvy consumers will shop around for the best rates and terms when borrowing money.
It's worth noting that FICO scores don't group together inquiries for credit cards-- each one shows up as its own separate hard pull. With the VantageScore model, however, inquiries made during a fourteen-day period are grouped together for any type of account.
If you've used some of these tips and tricks to improve your credit, it still can take some time to see the fruits of your labor show up in your credit score.
Only mortgage lenders can provide rapid rescores. If you aren't planning on applying for a home loan, this means that updating your credit report quickly will require that you manually contact each of your creditors after you've corrected errors, paid down your balances, and otherwise improved your credit profile.
When you contact your creditors, you can ask them to send a verification letter that reflects the new information on your account. This letter can then be forwarded to the credit bureau so your information will be updated.
The word "triage" is:
When you want to increase your credit score quickly, you'll want to use a similar approach. You should take a look at your credit report and find out which elements are most adversely affecting your score. You can then work to deal with these issues first before moving on to less urgent, less impactful aspects of your credit profile.
Finally, one of the most important things you can do for your credit score and your overall financial health in the long term is to ensure that you always use credit responsibly.
However, irresponsibly using credit cards can mean that you rack up more debt than you can afford, significantly damage your credit score, leave you with high-interest payments, have accounts go into collections, and so on.
No one likes spending their free time trying to improve their credit score, but it's a project well worth dedicating some time to. This is particularly true if you are expecting to apply for a loan or credit card in the near future.
There are a lot of things you can do to improve your credit, but not all actions you take in this regard are created equal. It's, therefore, a good idea to make sure you understand which elements of your credit report are most damaging so that you can focus on pursuing the most impactful factors first.
If you're motivated to improve your credit score and clean up your credit report, make sure you check out our credit-building tips blog for more useful resources!
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