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Your credit score, in some ways, holds more power than any other part of your personal information. Many people think of credit scores as only important if you’re applying for a loan or credit card, but in today’s world they’re used for many more things than just loans.
Without a solid credit history you can find many doors closed to you; there are, however, ways you can learn how to improve your credit score. Let’s check them out below.
On this page:
- Actions That Can Help Raise Your Credit Score
- How Long Does it Take to Improve Your Credit Score?
- Stay Away From Credit Repair Scams
Actions That Can Help Raise Your Credit Score
You have the power to raise your credit score, whatever your past missteps. Here are some ways to increase your credit score:
Fix Mistakes in Your Credit Reports
In 2012, the Federal Trade Commission found that approximately one in every five people caught at least one mistake on their credit report. Five percent of them had errors so serious that they had been denied credit or had to pay higher interest rates than they should have. And almost one in ten saw an increase in their credit score after getting the errors fixed. The moral of this story is simple – get errors off your report.
With three major credit bureaus maintaining separate reports on you, you’ll have to check all of them. You can receive a free copy of your report once per year, or if you’ve been denied credit in the last 60 days.
If you find an error, contact the credit bureaus and your state attorney general’s office. Credit bureaus tend to be slow and sloppy when fixing errors, and bringing in the state’s AG can help speed that process along. You can also contact the original creditor as well; errors in their records will translate to errors in reporting.
Lower Your Credit Utilization Ratio
If you tend to reach for your credit card first when making purchases, stop. Credit utilization – or how much of your available credit you’re using – is a huge part of your credit score because it tells a story about how you use credit.
Do you only dip into your credit card for emergencies? Do you pay off your balance every month? Do you carry high balances on multiple cards? All of these factors play a role in your credit score, and changing how you use credit can get you a higher score fast. Lowering your credit utilization ratio is an important way for you to improve your credit score.
Making even one size-able payment on a card also helps lower that ratio. If you’re in the habit of making the minimum payment every month, making a much larger payment can give your credit score a much-needed boost.
Avoid Late Payments
Use your personal financial software or electronic calendar to set payment reminders for your credit accounts. Paying on time, and paying more than the minimum, are good things and will improve your score – it shows that you have control over your financial situation. If you’ve already fallen behind on payments, get current and stay current.
Engage a Legitimate Credit Counselor
Credentialed counselors can give you individualized advice about how to raise your credit score. A counselor can go over your situation and point out several ways to improve your score. Use a reputable credit counselor, but be on the lookout for credit repair scams. These are fraudulent companies that charge up-front fees for services that you can accomplish yourself for free. In the worst cases, these scammers take your money but don’t lift a finger in your defense. If a company guarantees that it will remove correct negative information from your credit report, find another provider.
How Long Does it Take to Improve Your Credit Score?
Time heals all wounds, or so they say. It’s hard to have a chipper attitude when your credit score is mired in the subprime range despite your efforts to raise it. The message is: Have faith! It might take 6 to 12 months to start seeing results, but if you do all the right things, your score will rise.
Here are some facts concerning the timing of credit score improvement:
Negative items, even bankruptcies, eventually drop off your credit report and no longer depress your score. Most major negative events automatically sunset after seven years, including:
- Paid-off tax liens
- Court judgements (unless the statute of limitations is longer)
- Collections and charge-offs (actually 7.5 years, since it encompasses the original due date)
- Completed Chapter 13 bankruptcies (however, Chapter 7 bankruptcies linger for 10 years)
Even before negative items roll off your report, their impact erodes with the passage of time. The reason being that old data is less predictive of creditworthiness. For example, a missed payment could cause your score to tumble, but recovery might occur in as little as one and a half years. By the way, the initial impact is worse for folks with high credit scores, since it indicates a departure from previous form. Therefore, it takes longer for negative items to lose their sting if your credit score had been excellent or good.
Minor infractions can lose their punch within a year. These include maxing out a credit card, closing an account, and obtaining new credit. However, if your credit score was high before the negative event, the recovery period might stretch out over two to three years.
Back in the Saddle
A major negative event might cause you to throw up your hands and give up, but it’s a much better idea to get back into the game by taking small positive steps. For example, you can open a credit-building account with a credit union, in which you borrow money, deposit it into a savings account, and then repay the loan over a year or more. This won’t cause major items to expire any sooner, but it will add a positive aspect that will partially offset the negative impact of the derogatory item. The point is to take helpful actions to accelerate the recovery process. Simple steps, such as paying on time, paying off old balances, and avoiding new credit, will help you bounce back from unfortunate items in your past.
Stay Away From Credit Repair Scams
If you’re trying to improve your credit score fast, you may be tempted by ads for credit repair that promise to get you stellar credit quickly. Most of these offers are scams that can not only take what money you do have, but can even get you arrested and imprisoned for fraud. In fact, attorneys at the FTC say they’ve never seen a legitimate credit repair operation.
You can recognize a scam pretty quickly if you know the signs:
- They demand you pay a fee upfront before they do anything for you
- They tell you never to contact the credit bureau yourself
- They tell you to dispute everything on your report even if it’s correct
- They don’t explain your legal rights
Worse, some scammers give you a “credit profile number” or some other customer number that’s nine digits long, and tell you to use that when applying for credit. What they don’t tell you is that it may be a Social Security number that’s stolen; when you use it, you commit felony fraud.
The bottom line is that improving your credit score takes time and discipline. You can, however, gain some initial progress very quickly by lowering your credit utilization ratio or fixing errors on your report. That progress will get you started on the road to credit recovery.
Author: Jeff Gitlen