Is your below-average credit score keeping you up at night? No one wants to be denied a mortgage or loan, or face higher interest rates because of a poor credit score. But if you do have a low credit score, the good news is that it doesn’t have to stay that way. Fortunately there are changes you can begin making to your financial lifestyle that can have a significant positive impact on your score.
To start, it’s good to know exactly which credit score tier you fall into. Generally speaking, “Excellent” credit is defined as any score at or above 750. A “Good” credit score is one that falls between 700 and 749. If your credit score falls between 650 and 699, you have a “Fair” credit rating. “Poor” credit would be a score that lies between 600 and 649. And “Bad” credit is any score below 600.
If you don’t know your credit score, there are a few different ways you can find out. One potential way is to check your credit card or loan statement. Many major credit card and loan companies have started to provide credit scores to their customers on a monthly basis. If your credit card or loan provider offers this service, your score is typically listed on your monthly statement, or can be accessed by logging into your account online.
Your credit score can also be purchased directly from the three credit reporting agencies – Experian, Equifax, or Transunion – or you can obtain your FICO credit score through http://www.myfico.com.
Another way is to utilize a free credit score service like Credit Karma. Before signing up for these types of services however, be sure to read any fine print associated with the offer. And be aware of “free” sites that require you to enter your credit card information. Many times, you’ll need to cancel the service within a specified period of time in order to avoid charges on your credit card.
Once you’ve determined your credit score, and your credit tier, it’s time to check your credit reports. The law allows you can obtain a free copy of your credit report from each of the three agencies every year. You can order these free reports from a central website – http://www.annualcreditreport.com. Or you can call 1-877-322-8228 for your report. There is also a request form that you can download from https://www.consumer.ftc.gov/sites/www.consumer.ftc.gov/files/articles/pdf/pdf-0093-annual-report-request-form.pdf. Just fill it out and mail it to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281
Once you have your reports, look for any errors such as incorrect records of what you owe on your accounts, or late payments that never occurred. When verifying information in your credit reports, keep in mind that each of the three major credit reporting agencies operate separately from one another. So, if you find an error on one agency’s report, you’ll need to check to see if that error also exists on the other reports. Any errors you find should be disputed directly with the credit reporting bureau that produced the report. If the same error appears on multiple reports, you’ll need to dispute each one individually with the different credit bureaus.
Once you have a handle on your credit reports, consider these tips for improving your credit score:
- Pay down balances on your accounts. Eliminating or reducing your balances has the greatest impact on your credit score, according to financial experts. That’s because credit utilization – which is the amount you can borrow versus the amount of debt you’re carrying – accounts for 30% of your score. Paying down balances is also one of the fastest ways to improve your credit score. And if you have nuisance balances – small balances carried across several credit cards – get them out of the way as fast as you can, since one of the factors used in determining your credit score is the number of cards that have balances.
- Pay your bills on time. Paying your bills on time shows that you can handle credit responsibly. If you repeatedly make late payments, you’ll be considered a greater risk by creditors. To ensure you’re making timely bill payments, take advantage of payment alerts, or bill pay services through your financial institution.
- Have a good mix of accounts, such as loans and credit cards. It shows that you’re capable of handling different types of accounts.
- Consider opening a new account. While it may seem strange to open a new credit card account while you’re paying off balances on existing ones, in some cases doing so can actually help your credit score. This is because a new credit card will increase your total outstanding credit line and thereby improve your credit utilization ratio. But don’t overdo it and try to open several accounts at one time. This will trigger multiple inquiries that will show up on your credit reports, which could drag down your score.
- Don’t close out existing credit cards once you pay them off. Once you pay off the entire balance on your credit card, you may be tempted to close the account for good to avoid racking up additional balances. But doing so could have a negative impact on your credit score, since closing an account will decrease the amount of credit available to you. If you keep your card open instead, and either use it sparingly, or not at all, that available credit will help to reduce your credit utilization, and improve your credit score.
Starting the process of improving your credit score may seem daunting, but every little thing you do to help clean up your credit reports will go a long way toward brightening your financial future.