How to Improve Your Credit Score

Your credit score is a vital financial tool that impacts your ability to borrow money, secure housing, and even land a job. It reflects your creditworthiness based on your borrowing and repayment history and is an indication of your financial health. And, because the difference of one point in your credit score can translate into hundreds or thousands of dollars in borrowing costs, it is more important than ever to remain vigilant over your score and look for ways to improve it.

The good news is that raising your credit score is pretty straightforward. Still, it requires a deliberate plan with methodical steps that can produce positive results within a relatively short period of time. If your score has been languishing in a lower credit score range, you can change its course by systematically applying some key measures that directly impact your score.

Scrub Your Report Clean

Studies have shown that millions of credit reports contain one or more errors that can be easily fixed. It’s the primary responsibility of the credit reporting company to ensure that your report is free of errors, many of which are misreported items, such as an incorrect credit limit or duplicate accounts. In some instances, the reports contain credit activities that belong to other people. The credit bureau must correct these mistakes immediately.

Give Yourself Some Credit

It’s truly ironic that in order to improve your credit score, you need to go into debt. But, without a credit history, there is nothing to score. The credit reporting companies need to see how you handle credit, and they will want to see a history of timely payments. If you are unable to obtain a credit card, get your payment history started with a secured credit card. The payments are reported in the same way as if they were an unsecured card.  Gas cards and retail cards may also be easier to obtain at first.

Keep Your Balances Low

Your credit score is based, in part, on your reliance upon credit. What that means is that if a credit reporting company thinks you rely too heavily on it, it may view you as a risk. Their gauge for this is how large your balances are relative to your credit limit. When they see your credit card balances exceed 30% of your limit, they may dock your score even if you are never late on your payments.  Pay off high balances and keep them below 25% of your credit limit.

Mix it Up

Credit raters may be concerned if all your debt is generated from revolving credit. They want to see how well you can manage different types of debt, so try to obtain an installment loan on an appliance or an auto loan. It’s important that your total debt payments don’t exceed 25% of your income.

Easy on the Credit Requests

Once you obtain a couple of credit cards, a retail card, and an installment loan, you don’t need any more credit. At the very least, you shouldn’t request more because if the credit bureaus see too many credit inquiries in your report, they may see it as a sign you plan to go deeper into debt. Keep your credit inquiries down to one or two per year.

Become a Squeaky Wheel

If your low credit score is due to derogatory items, such as a past collection account, contact the credit reporting companies and ask to have them removed. If the account has been paid, you can try to dispute it. Many times, if it’s an ancient collection account, the collection agency may not even have a record of your account. It’s worth a shot.

You could also try to talk a lender into removing a derogatory item, such as a 30-day past due. If your relationship with it has been good, they may respond favorably to a written request - or they may not. That’s when a follow-up call can make a difference. Sometimes, they may be willing to reset your account to a prior period if you demonstrate a solid payment schedule.