No matter your credit score, you can benefit from a higher one.
A good credit score opens up a whole new world; a world where you can buy a home, qualify for better rental options, get the best insurance rates and pay less interest on money you borrow. We understand that the world of credit and credit scores can seem complicated to navigate, but there are simple steps you can take to improve your score substantially.
First, you need to know the heavyweight categories that affect your score the most. These are the elements that can make or break your score the most, and while there are additional categories, different scoring algorithms, and variable weights, improving these largest categories will always get you the same result. Better credit.
The four highest impact categories are:
Your payment history – This shows the history of repaying your account debts. Creditors like to see consistent repayment. Late payments that are reported on your credit report can lower your credit score significantly and stay on your credit report for up to seven years.
Your credit utilization ( credit card use) – This is the amount of credit you are using in relation to the credit limit you have. Creditors want this number below 30% but the lower, the better.
Derogatory marks – These are negative records on your credit report such as an account that has been sent to collections or if you have had a judgment, bankruptcy or tax lien. Derogatory marks can stay on your credit report for seven years (up to 10 years for bankruptcy).
Length of your credit history – This is the length of time you have had active credit accounts. Creditors like to see that you have a good history of managing several credit account types well.
Now that you know the highest impact categories, how can you use this knowledge to improve your credit score? We’re glad you asked! We introduce to you, the three best steps you can take to improve your credit score.
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- Check your credit reports and dispute inaccuracies.
Get your free annual credit report from the three major credit bureaus; TransUnion, Equifax, and Experian. You can do this by going to https://www.annualcreditreport.com/. Once you get your report, look for errors. Check everything; employment history, address history, name misspellings, etc. Make sure that all of the listed accounts belong to you and that the amounts and payments are accurate. Check the dates of all reported late payments or derogatory remarks and if they are older than seven years, dispute them. Dispute all errors you find. You can do this online or via a dispute letter. If your dispute is successful, the bureaus will make the change and send you an updated copy of your credit report. If you think errors are unlikely, think again. A study done by the FTC determined that 1 in 5 consumers had an error on at least one of their three credit reports. - Think before you close your credit card accounts.
Many people make the mistake of closing an unused credit card account or closing credit cards that have been recently paid off, vowing never to use them again. However, doing this may negatively impact your credit utilization percentage, and if the card is significantly older than your other accounts, it may also make your credit history length appear shorter. Instead of closing your accounts, pay them down to lower your credit utilization. Or better still, pay them off and put them away! - Immediately start paying your bills on time and sustain it.
No, this won’t improve your credit score overnight, but with consistency, it will improve significantly because credit scores rely heavily on payment history. If you have accounts that are past due or in collections, you can call the creditor and ask them to remove late payments from your report in exchange for payoff or an automatic payment plan. Make sure you get all agreements in writing. If your creditors do not agree to remove late payments, setting up a payment plan with your creditor can still help improve your credit score over time, because you will be building good credit history and distancing yourself from that last late payment entry.
Following these three simple steps will raise your credit score and get you on the right credit repair track. The lower your score is, the more your credit score will improve. While following these three steps is sure to increase your credit score, we understand that it can be overwhelming. Seeking professional help can speed up results and lessen the stress of doing it yourself.
We at Family Financial Education Foundation want you to save money by improving your credit score. We are an accredited nonprofit credit counseling agency, and our my credit plan program can help you improve your credit score and open up a new world of opportunity. Click here to learn more about our my credit plan program!
Whether you choose to do it yourself or seek professional help, we wish you the best of luck on your path to improving your credit.