You need good credit to buy a home, a new car, or even to get a job. Insurance companies and even utility companies often check your credit when determining rates or security deposits. You must improve your credit score as much as possible for the best outcome, but how?
Here are some unique and effective ways to improve your credit score.
Watch your Utilization Ratio
Even if you pay your bills on time every month, you can still drag your credit score down if you have too much outstanding debt. Your credit cards have the largest effect here. If you charge too much debt and don’t pay it down, you decrease your score.
Your credit utilization or the comparison of your outstanding debt to your credit line makes up 30 percent of your credit score. If you have more than 30 percent of your available credit outstanding, it works against you, decreasing your credit score. For example on a $1,000 credit line, you shouldn’t have more than $300 outstanding at once.
Learn how to Negotiate Charge Offs
Charge offs damage your credit score quite a bit and they remain on your credit report for 7 years. While the effect on your score decreases over time, the fact still remains that you let an account go unpaid for 6 months or longer.
What should you do?
Ask the creditor for a ‘pay for delete.’ Figure out how much you can pay (satisfying the full amount is ideal), and ask the creditor to delete the charge off from your account in exchange for payment. They aren’t under any obligation to do so, but if it means you’ll pay your debt, some creditors might.
Look for Credit Report Errors
Check your credit report for errors. They happen all the time. Until April 21, 2021, everyone has free access to their credit reports weekly. Pull your reports at least once a month and check for account accuracy, name spelling, and the right payment information.
How can you fix it?
Write to the credit bureaus (they each have a link online) to report the inaccuracy. The credit bureaus have 30 days to respond to your request.
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Keep Unused Accounts Open
As tempting as it seems, don’t close unused accounts. You need the length of credit history and the higher credit limits to help your credit score. Closing your accounts shortens your credit history and decreases your available credit, which negatively affects your score, as we spoke about above with the credit utilization rate.
Use your Credit
This may seem like an unconventional piece of advice but use your credit. If you have a bunch of credit cards sitting unused and you don’t have any current installment or housing loans, your credit has no activity. This brings your credit score down, not because you have ‘bad’ credit habits, but because you don’t have any habits the credit bureaus can measure.
Improving your credit score is important and it takes time. If you know you’ll apply for a mortgage, a new job, or to buy a car in the next few months to a year, start working on your score now. It takes time, sometimes as long as six months to a year for scores to increase, so make sure you allow plenty of time.
Looking for a place to start? Our financial advisors are available from anywhere with the Filance mobile app. Improve your credit today!