Last Updated on Dec 18, 2019 by James W
Whether you are buying a car or applying for a home mortgage you will soon find out how important your credit score is. A credit score is a number that expresses a consumer’s creditworthiness, and is based on credit history.
Lenders use credit scores to evaluate the probability that an individual will repay his or her debts. A person’s credit score ranges from 300 to 850, and the higher the number, the more trustworthy they are.
Many Americans could benefit from raising their credit score and through implementing some of the strategies below, this process can be made rather easy.
1. Create A Plan
The first step is to make a solid, realistic plan on how you will raise your score. Paying off credit cards, past due items in collections and managing your monthly cards correctly can be very overwhelming at first. To lessen the stress and make this task a bit more manageable you should look into an organization system.
There are many debt payoff planner resources from apps to websites available to help you through. Creators of these planners have made maneuvering your credit much easier. Visual representations, reminders, and tips are displayed in a personalized window for you. Some resources are free of charge, but more secure options can require monthly or annual fees. Its recommended to go with a well trusted option to avoid your personal information being compromised.
2. Clear up Collection Accounts
Debts owned by collection companies are reported to the credit bureau and are a huge stain on your credit score. You need to first find out what companies are making attempts to collect debts from you. This can be tricky for some people because they could not remember all their past debts, or they may be receiving calls from scam artists who claim to be collections companies. A good way to sort out the true debts from the fraudulent is to obtain a copy of your credit report. Several companies offer a yearly copy of your credit report and we recommend getting a copy from each. You want to be sure you don’t miss any debts that may be exclude from one company’s report for whatever reason.
Once you have your credit report reach out to each company that you are listed to owe. There are occasions where these companies may settle your debt for less than what is owed, so be sure to request a lower payoff amount when you call. From there you can either pay off your debts in full or apply for payment plans through the collection agencies. Once your debt to the collection agency is paid, they will report this to the credit bureau- who can then remove it from your credit report. This then raises your credit score.
3. Address Payments Before They are Sent to Collections
Paying off debts in collections is a huge hassle because of the fact the you must go through searching contacting and waiting until your score improves. Stay ahead of the game with your current debts that may not have been sent to a collection agency yet. Debts made with the last year *that you may or may not be ignoring the letters and phone calls from* can be addresses and halted from being reported. By even making a minimum monthly payment of a few dollars you can show the company you owe that you will make an effort to pay this debt. Paying them off little by little may be a long process but you will at least keep them from being reported and negatively affecting your credit score.
4. Limit Credit Applications
Every major department store now a-days has their own credit card that promises to offer rewards on purchases, discounts or even free items for completing the application. What you may not realize is, every time a credit card company receives an application from you they make what is called a hard inquiry. These can affect your credit score for up to a whole year! The hit is small (normally around 3 to 5 points) but if you’re in between a good or fair credit score or applying for lots of credit offers in a short time span, you can do a lot of damage.
When you obtain the copy of your credit report, there is a section in it pertaining to inquiries on your credit. If you find that a hard inquiry was placed on your credit file and you have no knowledge of it, make sure to contact the lender that performed the inquiry to see what it was pertaining to. If it is not accurate or you still have no knowledge of the inquiry, you should expect fraud and should promptly alert the credit bureaus of the alleged fraud so that it can be investigated. Doing so may also remove the inquiry from your credit report, although it may take some time.
Soft inquiries, on the other hand, do not affect your credit score at all and is typically done when a lender is looking to issue you a higher line of credit or someone checks your credit report as part of a background check. A soft inquiry can happen even without your permission but will not affect your credit standing in any way.
5. Manage your Monthly Credit Usage Properly
One major factor in your credit score is how much revolving credit you have available to you versus how much credit you’re charging monthly. The smaller that percentage is, the better it is for your credit rating. The optimum credit card usage is 30 percent or lower. So, for example if you have a $500 credit card limit you should use less than $150 per month. Staying closer to the 10-20% mark is best just in case something happens, and you need to use your credit card for an emergency.
What you might not know: Even if you pay balances in full every month, you still could have a higher utilization ratio than you’d expect. Even if you’re paying balances in full every month, your credit score will still weigh your monthly balances. This is because some issuers use the balance on your statement as the one reported to the bureau.
Your credit score is an extremely important number for many large decisions in your life. Understanding how your score is decided and how to impact it positively is going to make all those large decisions a bit easier. Invest time into finding a good debt payoff planner app or website to make things much easier on yourself. There are several options available to get your credit score out of the red and into the green!
If you have any helpful tips or advice for people trying to improve their credit score, leave a comment and share your experience in the section below.
