Has your credit score prevented you from qualifying for a loan or credit card recently? Or maybe you were approved, but at a very high interest rate. A low credit score can actually cost you a more money in interest payments and fees than having a high credit score. In order to qualify for lower rates and better loans, you may need to look at some quick ways to increase your credit score and get your credit back on track.
This post has been sponsored by CreditRepair.com. All opinions are mine alone and are honestly conveyed.
How your credit score is calculated
You may be wondering exactly how your credit score is calculated, and that is a pretty complicated formula that most of us will probably never actually know… But, we do know the factors that the credit bureaus take into consideration when they are calculating your credit score:
- Number of accounts that you have open
- Level of debt, as compared to available credit
- Length of credit history
- Payment history
- Number of recent credit inquiries
Your credit score is simply the credit bureau’s assessment of your risk to a creditor when they decide to extend financing to you in the form of a credit card, mortgage, or personal loan.
Clean up your credit report
The first thing that you need to do in order to repair your credit is figure out what is showing up on your credit report.
Clear up inaccurate information
If you haven’t seen your credit report in a while, it is a good idea to check because you may have inaccurate or old items reporting. For instance, if you have an old collection account from five years ago still showing up, or even reporting as though it is current, it can definitely drag down your score. Once you have identified the items that need updating, you must work to get those removed from your report. Any time you have negative items removed from your credit report, your score will increase.
Settle bad debts
Do you have loans or credit cards that you have defaulted on or are in collections? If these types of debts have not been settled, and they are still showing up on your credit report, they are probably weighing down your score. If you have “bad” debt, don’t think that the only way out is bankruptcy. Often, the creditors are willing to negotiate and settle the debt for a lower amount than what you actually owe in order to be considered settled and paid.
But how do you go about cleaning up your credit report and getting old or inaccurate items removed? You can do it yourself—by contacting each bureau and providing the necessary documentation to have the items successfully removed. Or, if you are feeling overwhelmed or just don’t know where to start, you can choose to use the services of a company, such as CreditRepair.com, to help you complete the process.
Ask for a credit line increase
If you have a credit card that is close to its maximum limit, it may be dragging your score down—especially if you don’t have much other credit. But, if you have been paying your bill on-time every month, you may want to call your credit card company and see if they will approve a higher limit on your credit card. Getting a higher limit can lower your balance to credit limit ratio and help to improve your credit score. The key to leveraging a credit line increase to your advantage is that you don’t charge the credit card up to the limit again, but allow your balance to remain low relative to the maximum amount of credit that has been extended to you. For instance, if your current credit card balance is $2800, with a credit line of $3000, it could be keeping your score down. However, if your credit line is increased to $5000, and you keep the balance at or below the $2800, then it appears that you have access to more credit that you aren’t using and your score will increase.
Become an authorized user
Whether you are just starting to build your credit history or whether you are trying to clean up a bad one, you may want to become an authorized user on a family member’s credit card. How does becoming an authorized user help? For starters, if you are a college student and you have been added as an authorized user on your parent’s credit card, then it is helping to build a credit history for you. So, if dad and mom pay this bill on-time every month, and you are an authorized user on the card, then that also means that your social security number is attached to the payment history too, thus showing up as an on-time payment for you.
Obviously, you want to be selective with who you become the authorized user with or who you allow to become an authorized user on your own credit cards. If you share a credit card account with anyone who is not willing to pay their bills on-time or who may charge up large amounts of debt on one of your accounts, it can also work to harm your credit and lower your score.
Pay down balances
Paying down balances can take time—if you are trying to factor it into your budget on a monthly basis. However, you can use money from your tax refund this year or maybe a bonus that you receive from work to pay down a large chunk of debt much quicker. Using a tax refund or bonus money is a great way to pay down debt and increase your score without having to change your current monthly budget.
Make your payments on-time every month
This one is obvious, but it doesn’t go without saying… pay your bills on-time! The best way to increase your credit score over time, is with a history of on-time payments. More weight is given to current payments, so the sooner you get all of your account payments up-to-date, the sooner your credit score will go up.