You may not like it, but your credit score determines everything from what rate you will be offered on a mortgage to whether you are approved for a credit card or not.
As the economy has been recovering from the Great Recession, an increasing number of Americans have been able to get their finances under better control, but almost one-third have bad credit scores (below 600) still. If you are one of those who are still struggling, it is time to give your credit a boost. The following six tips are the quickest methods for increasing your credit score.
1. Get your credit report cleaned up
The first thing you should do, is head over to AnnualCreditReport.com and ask for your free credit report from all three of the major credit reporting companies:
The law entitles you to receive one free report every year. When you ask for it, be prepared to save it on your computer or print it out.
Once you receive your credit report, carefully examine everything in the reports. Specifically look for accounts showing unpaid bills or late payments. If any of the information is inaccurate, on the report there should be information on it where you can send in your dispute.
Making sure your credit report is always clean is very important not only for our credit score, but it can affect your job prospects as well. Employers are able to pull credit reports prior to making the decision on who to hire.
2. Pay your balance down
FICO’s consumer division called myFICO, calculates one of most used credit scores. It reports that that 30 percent of your credit score is determined based on how much you owe.
However, it isn’t just a matter of the amount you owe that is really important. What really matters is the amount you owe compared to the amount of credit you have. This ratio is called your credit utilization. So if your credit limit is $10,000 and your balance on your card is $5,000, then you have a 50 percent credit utilization. If you are completely maxed out on your $10,000 limit, then you have a 100 percent credit utilization.
There are different opinions on what credit utilization level is best. Experian recommends that you should have a 30 percent or less rate. So if your limit is $10,000 you shouldn’t have more than a $3,000 balance.
If you owe more than 30%, then one quick thing that you can do to boost your credit score is to pay down your balance. Live lean for a couple of months, take on a temporary job or have a garage sale to help you find cash to lower the balances on your credit card.
3. Pay twice per month
You may think you are doing really well because each month you pay your card off, even when it is maxed out. The problem with that is your credit just report balances once per month to the credit bureaus. According to https://creditrepaircompanies.com, if every month you are running up a large balance, it may appear like you are overusing your credit.
As an example, let’s say you have a credit card that has a $1,000 limit. The card is a rewards card, so you pay for everything with it. Every month you end up hitting your limit. Your statement comes and you owe $1,000. So you send a check in to pay off the balance. The problem is most likely your credit card company is reporting your statement balance every month. So it appears as if you have a $1,000 balance on your $1,000 limit. So your credit utilization rate is 100 percent, and that isn’t good for your credit score.
One way of alleviating the problem is to break your credit card payment up. Charge everything like you did before to receive the reward, but just send payments in twice a month at least so that your running balance is kept lower. Also, if you do use your card to make a large purchase and you have cash on hand, then just go ahead and immediately pay it off.
4. Request a credit limit increase
Perhaps you are unable to pay your balances down at this time. There is a different approach you can take to help improve your credit utilization rate. Give your creditor a call and request a credit limit increase.
If your $1,000 card is maxed out, see if you can get the limit increased to $2,000. If you can do that your credit utilization rate will instantly be cut in half. Just remember that the key is not spending any of this new credit. That will defeat the whole purpose of getting your limited increase if you go out and charge you card up to the $2,000 limit immediately.
5. Open up a new account
If your credit card issuer won’t grant a credit increase to you, apply for a credit card with a different creditor. It can still help out your credit utilization rate, given that your credit score adds up all of your balances and lines of credit together.
A person who has a $5,000 balance and $10,000 in credit has a 50 percent credit utilization rate no matter if that balance is one card or it is over several different cards.
However, just be aware that it also isn’t good to open up multiple accounts at the same time. When you have too many new account it may make you appear like you are desperate to go on a big spending spree. So don’t risk damaging your credit score. If you want to try to use this strategy, only apply for one or two new credit cards.
6. Negotiate your outstanding balance
Perhaps your credit score has taken a big hit due to having bill in debt collection. Although you can’t wipe out mistakes you made in the past on your credit card, what you can do is settle them as a form of damage control.
Dummies.com offers an easy to understand and brief guide on how you can negotiate your debt. The key here is to be make sure your agreement is in writing.