Improving your credit score
It is important to have a good credit score, because your credit score affects your creditworthiness. You cannot get a house with bad credit. You cannot open new credit card accounts with bad credit. There are ways to improve your credit score if needed. The following tips will help:
1. Fix errors. Sometimes mistakes happen. If you think there is an error on your credit report, dispute it. You can dispute errors online through the major credit bureaus: Equifax, Experian, and TransUnion.
2. Negotiate. You can ask creditors to erase debt or an account that was sent to collections. You can write them a letter asking them to remove negative items from your account if you pay the remaining balance. You should not make any payments until you have an agreement in writing.
3. Check your credit limits. Make sure that your credit limits are current. If your credit limit is reported as lower than your current limit actually is, it will appear that you are maxing out your credit cards every month. You should get the card issuer to mention your increased credit.
4. Get a new credit card. It is a good thing to have one or two credit cards. They can help your credit score if you do not overcharge and you pay your bills on time. You should use your credit cards responsibly. Try getting a secured credit card if you cannot get a traditional card. A secured credit card is backed by a savings account used as collateral on the credit available with the card. Money is deposited and held in the account backing the card. The limit will be based on both your previous credit history and the amount deposited in the account. This is a good option for people with bad credit. An advantage of using a secured credit card is that it helps to rebuild your credit history.
5. Get authorization. You can become an authorized user. This means that you get added to a relative's or friend's credit card account. Of course, it might be difficult to get your friend or relative to agree to this. Get an agreement in writing that states your spending limit and how you will send payments to the lender.
6. Use your cards sparingly, only when needed. Ideally, the ratio of credit utilization should be 30 percent or less. Do not use credit cards to pay for everything.
7. Ask for an increase in your credit limit. Be careful though — do not spend more just because you receive a credit increase. This tip will not work if you increase your spending along with your credit increase.
8. Do not cancel a credit card. Closing out a card will cause your credit to drop. This does not look good to credit bureaus. Keep your card active. This can be done by having a recurring charge such as your phone bill.
9. Mix up your credit. Using different kinds of credit can boost your credit score. For example, you can take out a personal loan. Be sure to make your payments on time.
10. Pay your bills on time. Your payment history is 35 percent of your FICO Score. Late payments will look bad on your credit report. You can use automatic bill pay if you cannot remember to pay your bills.
11. Make two payments on your bills every month. It does not look good when you use up too much of your credit limit. Make one payment before your current credit card statement ends and another one before the due date of your bill. This will reduce your balance.
Your credit score is not going to improve overnight, but you should see improvement in one or two months. Just follow these steps and give it time.