Whether you are trying to take out a mortgage on a house, lower your interest rates, or simply save money on future loans, your credit score is an important number. It reflects your past financial trustworthiness and tells businesses and banks whether you are responsible with your money. Improving your score, therefore, can help save thousands of dollars and make dealing with banks and loan officers much easier. Here are five steps you can take to improve your score.
Step 1: Get Your Score
Before you can fix your credit score, you need to know exactly what it is. You are entitled to one free credit report per year, so go to websites like annualcreditreport.com and get your full credit report, which includes everything you owe, your borrowing history, and your numbered score.
After that, examine your report and track the charges that took your score down. Note how much you spend on food, utilities, and outings with your friends, and see if those monthly costs can be reduced. You are allowed to dispute credit listings for free, so check for old or inaccurate charges. You may be able to get them off your score.
For a simpler process, you can get a free estimate from websites like Credit Sesame, named the best site to help consumers manage their credit by FT Partners. This will give you a good approximation of your credit score without the full history.
Step 2: Become a Reliable Bill Payer
According to CNBC, the largest contributor to your credit score is your payment history. Unpaid balances on your card tell the bank you aren't a reliable user, and not only do you pay interest on these charges, but it lowers your score and makes it more difficult to get new cards and loans. You can help fix your score by keeping up with your monthly payments.
If you are having trouble doing this, try getting a secured credit card, which only allows you to spend the amount of money you deposit into the account. It's kind of like a debit card that helps build your credit score.
Step 3: Reduce the Credit Card Debt You Owe
Massive credit card debts and unpaid loans with high interest rates not only weigh on you emotionally, but they also damper your credit score. To improve your score, focus on paying off the debts you currently have as quickly as possible. While you may have to shave some expenses in the short-term to do it, the payoff for digging yourself out of this hole is well worth it.
If you have several collections or high interest rates, consider a strategic approach to debt reduction. Each collection item brings down your score, so paying the smaller items off first will lower the total number of collections reported and help your score. Catching up on any past due debts and then focusing on reducing the high interest rate debt are also good strategies to improve your score.
Step 4: Don't Fall for Any “Fix-It-Quick” Schemes
“If it seems too good to be true…” is a valid sentiment when it comes to credit score improvements. Your credit score reflects your spending habits and credit reliability, and a bad score typically reflects bad financial habits. Address the problem—don't simply put on a Band-Aid.
Step 5: Be Patient
It will take time to properly fix your credit score. Unless you are consistent with paying off your debt and managing your money, your score can drop back down in the blink of an eye. By following these steps and developing smart financial habits, anyone can raise their credit score and get themselves in better financial shape.
While it's easy to identify a problem, we understand it can be difficult to fix. Check out the free calculators on our website to help you budget and save effectively.