Remember back in school when you would misbehave and teachers would threaten that the incident would go on your permanent record? Naturally, no one in your adult life cares if you got into a screaming match on the playground over which baseball team or band was the best. But there is a permanent record that follows you throughout adulthood: It’s your credit report, and this permanent record can have a substantial impact on your life. Your credit score is used to determine your credit worthiness. If you want to get a credit card, buy a car, or rent or buy a home, your credit will determine what options you have. Now employers often run credit checks as part of the hiring process, so a bad score can also keep you out of a job. Is your credit already less than perfect? No worries! There a few simple tricks anyone can follow to help raise their score.
Check Your Credit Report
Your first step in improving your credit is to know your credit. Americans are entitled to a free credit report from each of the three agencies (Experian, TransUnion, and Equifax) every year. Get your free reports and thoroughly go over each one. Look for variations of your name you’ve never gone by, addresses you’ve never lived at, and accounts you don’t remember having. Also, check for accounts, late payments, and credit inquiries that should have fallen off of your report. Typically, negative information (like late payments and collections) stays on your record for seven years, while inquiries stay on your report for one year. Also, look for any account that might appear twice (maybe your student loans were transferred from one lender to another but both are reporting on them, or perhaps you let a credit card go into collections and both the original credit card company and the collections agency are appearing). Highlight any mistakes. With your report in front of you, figure out how much money you owe, and identify your oldest line of credit. This is information you’ll need in the future as you start working to raise your score.
The free credit reports don’t come with information about your credit score. Several websites show you their calculation of your credit score, but they often don’t use the same scoring matrix that banks and other financial institutions use. However, choosing one and using it to track your credit score over time will at least allow you to monitor the progression of your score (hopefully upward!).
Dispute Any Errors
Forty million Americans have errors on their credit report, according to the FTC, and 20 million of these people have significant errors on their reports. If you are one of these people and have identified errors on your report, the FTC website lists the steps you should take and provides a sample letter you can use to dispute the errors. You will need to send a letter to each credit reporting agency that lists the errors and include copies of any documentation supporting your assertion that the information they are reporting is incorrect. The FTC suggests sending the letter by registered mail and including a paper copy of your credit report from that agency with the disputed item highlighted. The agency will typically let you know the results of their investigation within 30 days, and at that time, you will be entitled to another free credit report.
Stay Under Your Current Credit Limits
You can quickly impact your score for the better by staying well under your current credit limits. The amount of available credit that you’re using is called your credit utilization rate, and most financial experts agree that you should stay at or under a 30% credit utilization rate. For instance, if you get a credit card with a $2,000 limit, don’t charge more than $600 on the card. Of course, this is more difficult with mortgages and car loans. If possible, focus on paying off your credit cards and leaving them at a zero balance to offset newer home or auto loans. Many people find that making micropayments throughout the month can be helpful to keep their cards well under the credit limits. Cutting down the percentage of your credit that you use can show results in your credit score within 30 days!
Pay Every Bill On Time
The other easy trick to raise your credit score quickly is to pay every bill on time every month. Your payment history is the biggest component of your credit score, so if you’ve had bad habits in the past, this is the time to change them. Set up reminders on your phone of the due dates of all of your bills, write them in your planner, or put a sticky note in your checkbook: whatever works for you. Make this habit sustainable by building up an emergency fund so you can keep making payments in difficult times. You particularly want to protect your oldest accounts: The age of a line of credit is an important piece of the credit scoring matrix, so always keep your oldest accounts alive and healthy. Asking a parent or spouse to add you as an authorized user to an established credit account can boost the age of your credit and therefore can also boost your credit score.
Get a Secured Credit Card
Sometimes life happens and you end up in a situation where everything on your credit report is negative and you don’t have any active credit cards to start building a better credit history with. In this situation, there’s still something you can do to improve your score: Get a secured credit card. With these cards, you apply as you would for a regular credit card, but after having your application approved, you’ll need to send money to the financial institution, which they will hold in an account. If you send in $500, you’ll get a card with a $500 credit limit. Once you get that secured card, follow all of the above advice: Keep your credit utilization under 30%, make frequent micropayments, and never miss a payment or send it in late. Soon, that card will start reporting a positive history to the credit bureaus, and your credit score will begin to improve.
Once your credit score begins to improve, you’ll probably start getting offers for new credit cards and loans. Proceed carefully. Not only do you want to avoid having more credit than you can comfortably manage, but you also want to avoid having a large number of credit inquiries (and the resulting new accounts) hit your credit report and drop your score. There are different types of credit inquiries: Soft inquiries don’t impact your score, but hard inquiries do. Make sure you know what kind of inquiry will be run when you apply for a new account. It’s easy to avoid having too many inquiries hurt your score by doing your homework and carefully choosing what credit card or type of loan you want before you start applying.