Your Guide to Improving your Credit Score

The pain is real, the pain of bad credit that is. Millions struggle with the stigma of a low credit score, wondering how they can climb the score ladder. It can be confusing and overwhelming trying to navigate the different credit reports and delinquent accounts. Not to mention trying to understand the algorithms the credit score companies use to determine your current scores. But, not to worry, there are steps you can take to start the journey on credit recovery.

1. Educate yourself about credit

There are three major credit bureaus: Experian, Equifax and TransUnion. All three bureaus subscribe to the following credit tiers:

Excellent Credit: 750+

Good Credit: 700-749

Fair Credit: 650-699

Poor Credit: 600-649

Bad Credit: Below 600

A bad credit score can affect you more than you may realize. Getting a bank account, an apartment, car and more can be negatively affected if your credit report is lacking. You will probably end up paying thousands of dollars more in higher interest and fees due to your poor credit. There are a lot of different factors that affect your credit score. Following are some of the major credit score factors:

  • Payment History: If you make late payments, creditors will see you as a risk. This factor has the greatest effect on your credit score.

  • Amount of Debt: Debt contributes 30% to a FICO Score’s calculation and can be easy to clear.

  • Age of Accounts: If you’re newer to credit and borrowing then only time can help improve this factor.

  • Account Mix: Creditors like to see a good mix of different loan accounts. Don’t only get credit cards, mix it up with auto loans and other forms of credit.

  • History of Credit Applications: Applying for a lot of different accounts will raise red flags with creditors. They may see you as a risk who is taking on too much financial debt at one time.

2. Check your credit report

Out of sight and out of mind, right? It can be easy to just accept your bad credit and ignore your report. It does take time to review all your different credit reports, but it is a must do. There are three different credit report companies: Experian, Equifax and TransUnion. In an FTC study it was reported that one out of every four people have an error on their credit report, making it imperative for you to double check any potential mistakes.

Any negative errors like this will lower your score, but when removed will increase your score. You are entitled to a free copy of each of your three reports per year. You can get your free copy online by going to each credit report company’s website and following their instructions, or you can go to the government run website: Once you get your copy peruse your report and note any accounts you believe to be false.

Credit score companies are not infallible as we have seen with the recent Equifax security breach, one of the largest in history. The Equifax website platform was cyberattacked and about 44% of US consumers personal information, including social security numbers, were stolen. It is still unclear how this breach will affect those consumers, but it makes doublechecking your credit report a necessity. In addition, it may be smart to freeze your credit reports to safeguard against possible fraud.

3. Make a credit repair plan

Once you have reviewed your credit reports it’s time to make a plan for credit score repair. Pinpoint what exactly is lowering your score. Whether it may be from collection accounts or high credit utilization there are steps you can take to repair the damage. There will be footwork and time required for any type of repair needed. Make a list and gather all the information and evidence you may have to produce for the bureaus or creditors.

4. Dispute credit mistakes

Once you have a copy of all three of your credit reports it’s a time to scour your reports for any inaccuracies. Note the discrepancies for dispute. Make sure to also check your name, aliases, addresses and inquiries. It is important to look through all the information, as there might be clues that point to fraud as well. If there are inquiries or other inaccurate information on your report it may be a sign that someone is trying to use your credit for fraudulent purposes.

Following is a list of inconsistencies to check for on your credit report:

  • Is all your personal information correct?

  • Are all your credit accounts being reported?

  • Are there any missing or late payments you remember making on time?

  • Are there any accounts or applications you don’t recognize?

  • Are there any decades old negative accounts still on your report?

Now that you have noted all inaccurate information on your credit reports you may dispute them. The three different bureaus all have online dispute processes that are available. After you pass their security checks you will be able to access each account on the report and file your disputes.  After this is complete the credit bureaus will contact the creditors with your disputes. The creditors will have a certain amount of time to respond either affirming or releasing the debt. If they don’t respond the credit bureau will also remove the account from your record. This is a quick and easy way to clean up your credit report and raise your score. Be aware, though, that disputes need to be made with a good reason and possibly evidence.

5. Open a credit card

I know it sounds backwards to say to open a credit card when one of the ways to fix your credit is to keep credit card balances as low as possible. But, yes, having this type of account is one of the factors the bureaus use in your score. While a credit card with bad payment history or a high balance will hurt your score, a good payment history and low balance will highly improve your score.

Not everyone will be able to qualify for a credit card though, and the good ones require a decent score anyways. So, what can you do if your score is low? Secured credit cards provide a good option to fulfill this need. Typically, secured cards require a minimum deposit of $200.00 to open a card. They report to the major credit bureaus, helping you build positive credit history.

6. settle collection accounts

If you have negative collection accounts on your credit your credit score will reflect that. Contact the account holders, which may be held by a collection agency instead of the original creditor now. Oftentimes the creditor may settle the account for less than is owed. Negotiate with them to close the account.

When you come to an agreement make sure that they will remove the account with the credit bureaus and get this promise in writing before you make the payoff payment. If they do not change the status with the bureaus, then you will have the documentation to file with them yourself. If you feel that the amount is incorrect on your credit report then dispute it with the credit bureau, you may be able to have it removed and improve your score quickly.

7. Leave old debt alone

On your credit reports there will good debt and bad debt. Bad debts are delinquent, unpaid or charged off accounts. These are obviously not good for your score and you should aim to remove these. But, good debt are accounts and loans that you have paid off and are closed. There are some that believe you should have good debt removed from you credit, but this isn’t so. Good debt improves your credit score and should be left alone. In fact, the longer you leave good debt on your record the more it helps the length of your credit history and helps your score. So, don’t ever touch that good debt, hope it stays there forever!

8. Eliminate credit card debt

Another factor credit report companies use to determine your credit score is the number of credit cards and their balances. Having multiple credit card accounts with balances can add up to negatively affect your score and are referred to as “nuisance balances”. The best solution is to pay off all the small “nuisance balance” credit cards and only use one or two credit cards for your future purchases. This will help scrub your credit report of unneeded random balances and debt.

If you are having a difficult time doing this, then possibly consider transferring these balances to a balance transfer credit card to consolidate the debt. You may also be able to get a lower APR rate when you choose a card to transfer to as well. Once you have narrowed down your credit card usage make sure not to max out your revolving credit limit as well. The magic percentage seems to be 30%, this means that you should not use more than 30% of the available credit you have. If you are exceeding the 30% mark, ask your credit card issuer for a credit limit increase to achieve that percentage mark again. Consumers with the best credit scores typically don’t exceed 10% credit utilization mark.

9. Limit credit checks

You’ve heard of it, seen commercials on television about how loan applications and credit checks lower your credit. Yes, it’s true, “hard checks” are real. There are two types of credit checks, “soft” and “hard”. For example: every time you apply for a loan your credit gets most probably gets hit with a “hard check”. When this occurs, your credit can decrease for about a year.  If you make multiple inquiries, it is assumed you are looking to use more credit.

The only saving grace is that companies tend to ignore inquiries made within the prior thirty days (estimate depending on credit company). And, with car and mortgages it is expected that you will make multiple inquiries searching for the best rate while settling only for one loan. If they are made outside of the thirty days then they will be counted only as one if made within the same shopping period. The only exception to this rule are student loans, for which each inquiry is counted.

10. Pay bills on time

This probably should go without saying, but the first step to creating a positive credit profile is to pay your bills on time. Every late payment or delinquent account can immediately negatively impact your score. The ability to make your payments on time is one of the largest factors into your score.

This rule applies to all your bills too, even those that seem inconspicuous. For example: not returning a library book may end up on your credit report if that library reports to credit bureaus or hires a collection agency to collect. Be conscientious in all aspects of your life, you don’t want to get a nasty surprise on your report.

There are times when a bill gets paid late, that’s life. But when this happens don’t immediately fret. Call your creditor and ask if they can forgive the late payment, if you have a good history they are apt to do so. Make sure that you get back on track, it’s not the end of the world, you can minimize the damage by just continuing to pay on time in the future.

11.  Limit new accounts

Once you start seeing your score increase more opportunities for credit will start appearing. But just because you can open a new department store credit card, or gas card, doesn’t mean you should. Remember the rule of utilization that the credit report companies follow. Opening a department store credit card just to get that 10% discount may not be worth the credit score drop that you may encounter.

Starting down the road of credit repair can take time and commitment, but will be highly worth it in the end.  You deserve good credit and all the perks that come with that high credit score!