Your credit score has a huge impact on your overall financial well-being. A good score will help you to buy a new car, purchase your first home, or even take travel vacations.
However, without a good credit score, you will be saddled with high-interest rates or unable to obtain any credit at all.
Thankfully there are easy ways to improve your credit score.
Step 1: Get a free credit report from all 3 Credit Bureaus
The first step towards improving your credit scores is to order a copy of each report and review it for errors. A free credit report is available yearly from www.annualcreditreport.com
Be sure to request them from each of the three credit bureaus; Equifax, Experian, and Transunion. If you’ve been denied credit or employment due to your credit file, you can also receive a free credit history report even if you’ve already gotten a free report this year.
Step 2: Check Credit Report for Accuracy
Once the report is in hand, read through it and make sure all of the listed information is correct. Many components go into factoring your credit score. Eliminating just one bit of wrong or negative information can cause your score to improve and increase your chances of qualifying for credit. Alternatively, you might find some missing positive information that could help increase your score, like a lower loan balance. Updating or adding the correct information could easily boost your score.
Your Credit Report Accuracy Checklist
- Accounts that belong to someone else: If you have no recollection of a debt, it may not even be yours. Any unknown debt should be disputed.
- Incorrect delinquencies: Items may list as being paid late, even if they were paid on time. Late payments damage your credit score and should be disputed.
- Duplicated collections accounts: An account or debt should only be listed once. If it is listed multiple times by the same organization or by competing organizations, all but one listing should be removed.
- Incorrect judgment information: If a judgment has been incorrectly listed, it should be disputed; judgments can hurt a credit score or impact your ability to secure a loan.
Step 3: Disputing Errors
Once errors have been identified, they will need to be successfully disputed. As long as a negative item remains on the report, it will drag down your score. Therefore, the best way to improve your credit scores is to remove as many of these errors as possible. You can do this by disputing incorrect negative information with the credit bureaus.
When a consumer seeks to dispute an item on their credit report, the business or entity who listed the item is required to prove that it is accurate. For collection accounts, a collection agency will have to provide validation or proof of the debt within 30 days of the request or remove the item. For best results, validation requests should be sent in writing, with proof of delivery.
If the company is unable to prove the debt, they are required to remove it. If they do not, the debt should be disputed with the credit reporting agency. A dispute can be sent in the form of a letter or sometimes requested online, and requires the reporting agency to confirm the debt or remove it. Once negative information is removed, your credit scores should see an increase.
Step 4: Pay Your Bills on Time
Having a positive payment history on your credit report affects 35% of your score, making it the largest contributing factor. So the best way to get your credit back on track is to keep up with your monthly payments. Not all creditors report your timely payments, although credit card companies and mortgage lenders typically do.
If your account becomes 30 days delinquent or more, creditors can report the late payment to one or more credit bureaus. Late payments can also lead to charge offs and collections, meaning your outstanding debt is sold to a collection agency.
Make it a habit of paying on time each month. The best way to do this is to set up a payment that is automatically deducted from your checking account. Then you can sit back and watch your credit score increase month after month.
Step 5: Pay Off Your Debt
The next most important part of your credit score is how much debt you have. The first issue is having installment debt versus revolving debt.
Installment debt has a set term with regular monthly payments. If you have a car loan, a mortgage, or student loan, then you already have installment debt. This is looked at more favorably than the other type, revolving debt.
Revolving debt is the type associated with credit cards. There’s no set monthly payment, and you can pay off and take out more debt as you want to. It doesn’t look as good on your credit report because there’s no asset (like a car or house) tied to it. Help your score by focusing on eliminating revolving debt first.
Step 6: Use Credit Responsibly
Once you have your debt under control, particularly your revolving debt, make sure you continue to use your credit responsibly. Using your credit card isn’t bad. In fact, since most credit card companies report on-time payments, it’s a great way to build a strong credit history. Even if you don’t need to use your credit card (which is great), consider charging just one or two bills on it each month and making that payment before the due date. You’ll quickly rack up that payment history for your credit score.
Step 7: Keep Positive Accounts Open
Your credit score is also influenced by how long your accounts have been open, particularly the positive ones. Even if you don’t use a particular credit card and there’s no outstanding balance, consider keeping it open if you’ve had it for several years. Your score takes into account the average age of your credit cards because it indicates you’ve had a longer track record of payments.
Step 8: Minimize Credit Inquiries
A final way to improve your credit score is to hold off on frequent credit inquiries. Everytime you apply for a new credit card or loan an inquiry is generated and shows up on your credit report. Each one adds up to a few points deducted from your score for a year. The inquiry itself will be listed there for two years.
Talk to a Genisys Credit Union Member Service Representative about ways they can help you improve your score. Contact us to get your credit score moving in the right direction. Need help budgeting or making payments on time? Genisys also offers GreenPath Financial Wellness to get you back on track.
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