There’s a surplus of ways to harm your credit score such as running up student loans. Luckily, with some diligence and hard work, there are also a surplus of ways to fix your credit.
The Beginning: What is a Credit Score?
This is a 3 digit number generated by an algorithm using info in your credit report. This number is used to predict risk. For example, it allows potential lenders to get a big picture view of your credit and make an educated guess about how likely you are to repay any obligations in a timely manner. Everyone has a credit score. In fact, everyone has 3.
Everyone has a credit score for each of the major bureaus:
The Middle: How is My Credit Score Determined
If you don’t understand all of the factors that go in to determining your credit score, it may seem as if this 3 digit number is just random. Somewhere, some guys are sitting around rolling dice to determine what everyone’s credit score is. However, in reality, these scores are based on some very concrete factors. In order of most to least importance:
Payment history – This includes late payments.
Amounts owed – The amount of debt you have.
Length of history – How far back your credit goes (the longer the better).
Types of credit used – Types of accounts you have (ex. revolving and installment).
Credit inquiries / new accounts – are you opening a lot of new accounts? Are a lot of inquiries being pulled (this happens when you apply for new credit and sometimes when you seek new employment)?
Now that you know more about your score we can finally answer the question “How can I fix my credit score now?”
When looking for ways to “fix my credit score now”, keep in mind that your credit isn’t chalk on a blackboard. You can’t take an eraser and just wipe it away in the blink of an eye. Bad reports on your score will typically hang around for seven years and bankruptcies can be reflected in your score for as long as ten years.
The End: Helpful Tips to Fix My Credit Score Now
Tip 1: History is Important
Unfortunately, this aspect of your score is somewhat beyond your control. You can’t start establishing a credit history until your 18 and it takes years to be classified as “good”. This means it is important to open up a few credit cards ASAP, keep them open, and keep them in good standing.
The part you can control is how long a card stays open once you have been approved. If there is a card you no longer want to use, instead of closing it, simply store it or destroy it. Leaving the account open, as long as you aren’t being charged an annual fee, will allow you to keep building a credit history.
Tip 2: Don’t Apply All at Once
Applying for a lot of different types of loans (ex. credit cards) in a short period of time can lower your score… as can opening a bunch of loans in a short period of time. This is a pretty easy way to fix your score. Simply stop applying for a bunch of loans and opening new accounts
Tip 3: Pay Bills On Time Always
If you have trouble remembering to pay certain bills, set up automatic payments so that the money is automatically deducted from your bank account each month. If this isn’t an option, set up automatic reminders on your phone or email program’s calendar.
Tip 4: Pay Down Debt
Lowering your debt to credit ratio by paying off debt is another way to improve your score. Paying your debt off on time (as mentioned above) is critical but if you can, you should also pay off debt ahead of schedule. Any little bit (even just $10 extra a month) will help you accomplish this goal and lower your debt to credit ratio.
Tip 5: Check Your Credit Report 3x a Year
Doing this will help you spot mistakes and fraud like identity theft.
You are entitled to 3 free credit reports a year (one from each of the major credit bureaus).
Pull a credit report every 4 months and carefully examine it. Take any mistakes seriously… they could be signs of identity theft.
Tip 6: Negotiate with Collectors
Paying off an overdue account won’t automatically remove it from your credit report. If you’re only slightly late, the balance is extremely low, or you’re going to pay the debt off in full, you may be able to negotiate with the collection agency to have the item removed from your credit report.