Improving your credit score will take time and patience but is ultimately one of the most important steps you can take when planning for your future. One of the main reasons a higher credit score is ideal in the home buying process is because lenders are required to base the loan and interest rate, they’re able to offer you from your credit score and history.
Even if you’re in the excellent range, you might want to keep building. It’s wise to have a cushion of points rather than stay right at the border between good and excellent. That’s because scores naturally fluctuate a bit, and businesses set their own requirements for scores.
Many people have experienced past events that have affected their credit score negatively. If you are one of those people, the following tips may help you improve your credit score.
correct errors on your credit report
According to the Federal Trade Commission, about 5% of consumers have errors on their credit reports bad enough to result in a higher price for a financial product or insurance. About 1 in 4 reports contain errors that might have at least a small negative effect on scores.
Most credit report mistakes result from human error, either by a consumer or by a credit issuer. Examples: You apply for credit using your full name and a nickname; a creditor transposes digits in a Social Security number or credits payments to the wrong account.
If you haven’t requested your credit score recently, it is important that you do so. There are many factors that can change your score that you may not be aware of.
You can get a free report every 12 months from each of the three major credit bureaus: Equifax, Experian and TransUnion. Check them for mistakes, such as payments marked late when you paid on time, or negative information that’s too old to be listed.
Whenever you receive your report, always dispute any errors or discrepancies you may see on the report.
Pay Off Your Debts
No strategy to bump up your score will work unless you’re also paying on time. Why? Payment history has the single biggest influence on credit scores. But accidents happen. If you miss a payment by 30 days or more, call the creditor immediately. Arrange to pay up and ask if it will rescind the reported delinquency so it no longer appears on your reports.
Stop using your credit cards altogether; if you are slowly making payments on your debts owed, it will improve your score. Set up payment reminders and pay at least the minimum owed on each of your statements every time you receive one.
Creating more debt by continuing to spend on those cards is one of the worst mistakes you can make. Being late on your payments will hurt your score even if you are only paying the minimum.
Missed payments stay on your credit report for seven years but you can start counteracting the effect right away. Focus on paying every bill on time from here on out, so you’re offsetting those negative marks with more recent positives. Closing your current credit cards will not improve your score; it actually sets you back.
Don't Open Any New Credit Cards
To prove that you are really working towards paying off debts, it’s very important to stay away from opening any new credit cards or accounts. If you do, this will backfire in the credit score improvement process.
The only reason you may need to open a credit card is if you do not currently have one at all. This would show that you are making a step towards building credit history, and therefore making payments on time to improve your credit score.
How to improve your credit score by 100 points
If you’re struggling with a low score, you’re better positioned to make gains than someone with a strong credit history.
Is a 100-point increase realistic? The lower a person’s score, the more likely they are to achieve a 100-point increase. That’s simply because there is much more upside, and small changes can result in greater score increases.
And if you’re starting from a higher score, you likely don’t need a full 100 points to make a big difference in the credit products you can get. Simply continuing to polish your credit can make life easier, giving you a better chance of qualifying for the best terms on loans or credit cards.
You can speak to a credit repair company or financial expert to help you fix and improve your credit score. Just remember, the process of increasing your score can take some time, so be patient and work towards that long-term goal. You’ll be glad you did.