If you’re often turned down for loans, or you have a big purchase coming up and you’ll be talking to bankers soon, you’re probably constantly trying to figure out how to improve your credit score.
If that’s the case, you’ll want to try some of these credit-building strategies. But you’ll want to get started soon. While industry experts say that a credit score can rise within a few months of good financial behavior, it can sometimes take years for a credit score to really improve significantly. It all depends, of course, whether you’re starting from a relatively high score and trying to build it up, or from somewhere in the gutter. Most credit scores involve numbers from 300 to 850.
[See: 12 Habits to Help You Take Control of Your Credit.]
Make sure your credit report doesn’t have mistakes on it. It happens. Sometimes the information on your credit report isn’t accurate, and if that’s the case, you’ll want to contact the credit bureau with the incorrect data and try to get them to take it off. If you want to see a free credit report from any of the three credit-reporting bureaus so you can check your credit past, you can find how to get them by going to annualcreditreport.com. (You won’t find your credit score on your credit report, alas. But, again, if there’s negative information on your credit report that is weighing down your score, you’ll at least know what the problem is. If you’re wondering how to get your credit score, that’s another kettle of fish. You can buy each credit score from the three credit bureaus from MyFico.com for $19.95 each, but often you can get the scores for free from a nonprofit credit counselor. Some credit cards furnish the information for free, as well. But for now, if you’re worried about how to improve your credit score, focus on improving your credit report.)
That said, here’s some good news: Your credit score may have recently begun to climb without your realizing it. Starting in July 2017, Equifax, TransUnion and Experian, the three major credit reporting companies, require public records that they collect to have more detailed information, such as your Social Security number, than they used to. It’s an effort to reduce mix-ups. If you’ve ever had a debt collector call you, demanding you pay back money for some loan taken out by someone else who shares your name, you’ll understand the need for this instantly.
Industry experts believe that half, and maybe more, of the country’s tax liens will disappear from consumer credit reports, and that as a result many people’s credit scores will benefit.
Pay your bills on time. It’s obvious, but what you probably don’t know is just how much damage you do when you pay late — and how much rebuilding can happen when you do pay your bills on time.
“Paying your bills on time accounts for about 35 percent of your credit score. … This is the single most important step that you can take to raise your score,” says Roslyn Lash, a financial coach and founder of Youth Smart Financial Education Services, which offers financial education and coaching to youths and millennials and is based out of Winston-Salem, North Carolina.
[See: 25 Ways to Fix Your Finances Fast.]
Pay off or pay down credit card balances. If you have revolving credit and a low credit score and not much money coming in, you know this is much easier said than done.
One thing you may not be aware of, however, is the credit utilization ratio. Ideally, credit bureaus like to see that you’re using no more than 30 percent of your available credit. That is, if you have a $10,000 credit card limit, you’d want to owe no more than $3,000 to start to see your credit score improve.
And that’s the case even if you are paying your credit card bills on time every month and aren’t carrying a balance. Lenders get nervous when they see you borrowing heavily.
“If you use most of the credit available to you, then you appear risky, as though you’re using debt simply because it’s available rather than more thoughtfully and carefully,” says Lyn Alden, a financial analyst in Atlantic City, New Jersey.
She adds that other than reducing your credit debt balance, you could request an increased limit on your credit cards. If your credit score is low, a credit card company will obviously be less likely to oblige, but if you have a high, healthy score, and you simply want to make it even stronger without reducing what you borrow on your credit cards, you may want to take Alden’s advice. Alden, 29, says she has had a credit score of more than 800 since her early 20s.
[See: 9 Financial Tools You Should Be Using.]
Borrow more. If you have a good credit history, and you’re trying to figure out how to improve your credit score, this can actually be a smart move. (If you have a poor credit history, and you want a better credit score, borrowing more money is the last thing you want to do.)
“Credit diversity is a factor,” Alden says. “To achieve the highest credit score, it’s good to have a healthy credit mix, including both revolving credit and an installment loan within your recent credit history. This shows that you can handle multiple types of debt responsibly.”
In other words, if you only have credit card debts, and you want to improve your credit score, you’ll see it go up once you start making regular, scheduled payments on a house or a car. Of course, that bit of wisdom doesn’t help you if you’re trying to improve your credit score so that you can get a good loan to buy a house or car.
Still, you do want to show lenders that you’re a good credit risk, and you can’t do that if you aren’t borrowing money and paying it back.
“You have to have some credit in order to build credit,” says Harriette Halepis, a spokeswoman for the Dellutri Law Group, which is based out of Fort Myers, Florida, and specializes in, among other things, bankruptcies.
When even bankruptcy experts suggest you need to borrow money in order to convince financial institutions to lend you money in the future, that’s when you begin to see that figuring out how to improve your credit score is a little like figuring out how to solve a puzzle, riddle or a Rubik’s Cube. It might be highly frustrating and confusing for a while, but it’ll be very satisfying once you get the hang of it.
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How to Improve Your Credit Score originally appeared on usnews.com
