How to Improve Your Credit
Improving your credit score won’t happen overnight, but you can make a difference over time by taking certain actions.
Step 1: Check for Errors
To start with, pull your credit report from from all three credit bureaus using AnnualCreditReport.com. Normally, you get to do this once a year for free, but because of the pandemic, you can do it once a week for free! Review each item on all reports to make sure they’re complete and accurate. If you find any errors, you have the right to dispute them directly with the credit bureau. The bureau must research the matter and get back to you with an answer in 60 days. If the information is correct according to the bureau, they will leave it on your report.
What most people don’t know is that you have the right to put a 100-word explanation on your report. If you believe the report is incorrect, you can explain your side of the story. It won’t change your credit score, but it may make a difference to the person who is reviewing your credit bureau when you apply for your next loan.
Step 2: Pay Your Bills on Time
The most powerful way to improve your credit score is to pay every bill on time every month, month after month. Your payment history makes up 35% of your credit score. There is no way to go back and change history, but moving forward, pay on time. This will eventually improve your score, but it will take time.
Step 3: Pay Down Your Credit Card Balance
The next area that makes up 30% of your credit score is the balance that is carry on each of your credit cards. Did you know that if the balance you owe is more than one third of the credit limit, this hurts your credit score?For instance, if you have a credit card with a $3,000 limit, try not to use more than $1,000. Once the balance owed goes over $1,000, it starts to lower your credit score. If you have cards with high balances, review your budget and find some extra money to pay down these cards. The faster you get those balances down, the faster your credit score will go up.
Step 4: It Takes Time!
There are three other areas that make up the rest of your credit score: credit mix (10%), length of credit history (15%), and new credit (10%). You want to have a mix of credit accounts such as a mortgage, credit cards, and a car loan. Have you had credit for years or are you new to having credit? And lastly, if you have many new inquiries on your credit in a short amount of time, that will lower your credit score.
Linda Jacob is a Certified Financial Planner® and an Accredited Financial Counselor®. Linda began working in the banking industry in high school and put herself through college. After years of growing assets for her clients, her true purpose in life became clear. She was put on earth to help everyone become successful money managers, get out of debt, and reach their financial goals. When Linda isn’t working, she enjoys cooking, golfing, and reading.