How To Improve Credit Score

How to Improve Credit Score Fast

Repairing bad credit is a long, slow process. There are no quick fixes or easy shortcuts to achieving good credit. You should approach any claim to quickly fix a bad credit score with a great deal of skepticism; most of these schemes will do more harm than good.

The only true way to build good credit is by managing it carefully and responsibly over a long period of time. Especially when your bad credit has been caused by irresponsible behavior in the past, the only way to improve it going forward is to improve your credit history.

3 Important Things You Can Do Right Now

First, you should know that you are entitled to receive a free copy of your credit report from each reporting agency every year. If you haven't already, you should request a copy of a credit report from at least one company: Experian, Equifax, or TransUnion. Because there are three companies, you could theoretically request a copy of your credit report from a different reporting agency every four months.

Your credit report is the starting point used by the credit reporting agencies to determine your credit score, so you want to make sure that it is free of any errors. You should be especially careful to look for any incorrect balances due and erroneously listed late payments. If you do find any errors, immediately report them to the credit bureau and the relevant credit agency.

Any missed payments will significantly damage your credit score. It may be worth setting up payment reminders with your bank to inform you via email or text message when a payment is due. You may even consider setting up automatic bill payment through your bank, although this will not help you build money management skills.

The most effective way to improve your finances when you have bad credit is to simply reduce the amount of debt that you owe. Compared to your credit score, improving this factor is much more gratifying, but it's also easier said than done.

One of the simplest steps to take is to stop using your credit cards. Freeze them in a block of ice to avoid temptation if you must, and use your credit report to list all of your accounts in order of interest rate. Pay off your highest rate debts first to reduce your interest payments quickly, using as much of your available budget as you can spare.

More Tips On How To Improve Your Credit Score And Maintain Good Credit

There are many different ways to improve your credit score, depending on which area of your credit report is deficient. The reporting agencies mainly use the following two types of information to calculate your FICO score: payment history and total debt.

Payment History Tips

35% of your credit score is calculated from your past payment history. This means that improving this area will have the greatest effect on your credit score -- but unless they appear on your report in error, late payments and collections actions are not easy to correct. Always pay bills on time -- a bill missed by even few days can completely wreck your credit score -- and if you've missed a utility or other payment, get current ASAP.

Once your payments are made on time and in full every month, your FICO score will gradually increase, as your percentage of on-time payments improves. Past payment records fade in importance over time, so if you turn over a new leaf, your credit score will reflect your newfound trustworthiness.

Keep in mind that paying off an account that has been sent to collections will NOT remove it from your credit report. Any account that has been sent to collections will remain for the full seven years of the report. And if you are in danger of missing payments, you should contact your creditors to see about arranging a payment schedule, or seek a credit counselor. Merely visiting with a credit counselor will not affect your FICO score.

Amounts Owed Tips

Improving the amount of debt you carry can be simpler than correcting problems with past payments. At 30% of the credit score's value, this makes for a tempting target to improve your FICO score. However, that requires a disciplined plan.

Balances on revolving credit lines, such as credit cards, should be kept low. The best way to improve your debt rating is to pay off revolving balances; consolidating all such debt into one card and closing the rest may even harm your score, if you end up with a lower total credit limit as a result.

However, you should not open several unnecessary credit cards to raise your utilization ratio. The extra credit inquiries they incur, and the hit you'll take to the average age of your credit lines, will quite possibly outweigh the gain from your improved ratio. On a similar note, closing unused cards to improve your score is a poor strategy in the long term.

The following areas make up a combined 35% of your credit score. For that reason, improving in any of these areas may not provide as great an opportunity to improve your score, as opposed to improving your payment history or credit utilization ratio. However, they’re still worth looking into, especially if there are any simple changes you can make to improve your score.

Length of Credit History Tips

If you don’t have a long credit history, you shouldn’t open a number of new accounts within a short period of time. The average age of credit lines is an important factor in determining your credit score, especially when you are new to the world of credit. A new credit user opening a number of new accounts in a short period of time sends up warning flags to lenders.

If you have had credit problems in the past, it is absolutely worthwhile to open new accounts and rebuild your credit. Responsibly opening new accounts that you pay on time is a great way to rebuild credit over time.

New Credit Tips

You should only shop for the best rates on a loan within a short period of time. Every hard credit inquiry hurts your FICO score. If too much time passes between inquiries, the reporting agencies will count them as separate events rather than a single one.

Every credit reporting agency is required to send you a free copy of your credit report upon your request once per year. Obtaining this report directly from the reporting agency will never harm your credit score.

Types of Credit Use Tips

You should only ever apply for credit that you need when you need it, no more and no earlier. Don’t open new accounts just to try to improve your mix of different types of credit (such as revolving credit, home loans, and car loans), because this most likely won't improve your credit score, and may even hurt it. In addition, keep in mind that even after an account has been closed, it doesn’t disappear. A credit report goes back seven years, including closed accounts, which may still factor into your credit score.

Keeping and using credit lines is a good thing. In general, having and using credit cards, installment plans, and similar types of debt will improve your credit score over time. But this is only true if you don't incur too much debt, and only if you don't miss payments!