How to Improve Your Credit History
6 minutes read
Years ago, the only thing a less-than-perfect credit score did was make it difficult to qualify for credit. That affected buying a vehicle, house or business, and even securing a credit card. While that’s still true today, imperfect credit now has far more implications. Did you know that bad credit can prevent you from getting a job? It can even lead to you paying more for insurance, regardless of the type of policy.
What it comes down to is that more than ever, you need to take the appropriate steps to improve your credit as quickly as possible. This is especially true if you want to make a big purchase, find a new job or buy insurance. Don’t let your low FICO score prevent you from achieving what you want out of life. The good news – there are ways to improve your credit history, some easier than you think.
Some of these methods may sound familiar to you, while others are new. The key is to take advantage of multiple techniques. Combined, you’ll see your credit history improve and much faster than anticipated.
Review Your Reports
One of the most important steps to take entails reviewing all three of your credit reports – TransUnion, Experian and Equifax – not just one. The reason is that not all creditors report to the same agencies. Therefore, if you look at only one report, you could overlook something that needs addressing on the other two.
By law, you can request a free annual report from all three credit bureaus free of charge. Also, if a company denied you credit, you’re entitled to a free report from that particular agency. Although you can order hard copies individually, it’s far more convenient to review a 3-in-1 report available online. Regardless of how you go about obtaining your credit reports, the goal is to look for inaccuracies. Those include not just obvious mistakes but also omissions, misspellings and incorrect addresses.
If you identify a problem, you’ll need to file a dispute, which you can also do online. As part of that, make sure to include any supporting documentation. For instance, if a credit card company claims you still own a balance or that you haven’t made a payment in six months, you can get a copy of your card statement to show it’s paid off in full or that you’re current on payments. Sending that along with the dispute will result in quicker action.
Another proven way to improve your credit history is to maintain low balances on any credit cards. Instead of having a card with a zero-balance lying around, charge $50 to $100 every few months. Then pay the balance off in one to two payments. That way, you’ll have a positive report continuously.
Also, if you use your credit cards, always pay more than the minimum amount due each month. Most importantly, make your payments on time. Even paying within the grace period could damage your credit score. Therefore, look closely at the due date and pay before it. That’ll go a long way in improving your FICO score.
A cool trick with credit cards to prevent you from missing payments or paying them late is to set up some type of notification on your smartphone. In the app store, you’ll find multiple options. Now, if you have a card with a due date that doesn’t coordinate well with when you receive your paychecks, ask the issuing company to change it. That way, you won’t fall into the routine of always paying late.
It’s also important to correct your credit utilization ratio. If you carry a balance on a credit card that’s more than 30% of the spending limit, your FICO score takes a hit. Even if you pay extra each month and make payments on time, if the utilization ratio is out of whack, you can bet your credit is suffering.
Take Care of Collections
Any time a bill goes into collections, it hurts your credit. Whether a credit card, doctor’s bill or some other type of expense, make sure you focus on getting debt out of collections quickly.
In most instances, collection companies are willing to work with people. Sometimes, that entails setting up a payment schedule and other times, reducing the pay off balance. Either way, it’s far better to speak with someone at the agency trying to collect on debt than to ignore repeated requests for payment. The latter will only worsen your credit score.
For most people, it’s embarrassing to file for bankruptcy. However, there are times when an individual has no other option. If you’ve gone this route, don’t despair. Yes, bankruptcy will remain on your credit report for 11 years, but it’ll eventually come off. During the time it appears, you’ll receive quite a few offers for credit cards. This is because issuing companies know that you have no debt, making you a low-risk cardholder.
When that happens, choose just one, possibly two cards, wisely. Look for those with the lowest interest, excellent terms and a limited credit line. Receiving an offer for a card with a $5,000 limit is tempting, but it could get you into trouble. Instead, go for a card with a line of $1,000 or less. Then as mentioned, pay every bill on time and preferably in an amount more than due.
Many people don’t realize that no credit is almost as challenging as bad credit. You might have a low credit score not because you don’t pay your bills on time but because you lack any credit at all. If you’ve never had a credit card or you’re still young, consider opening a secured account. With that, you would load a card with around $200. Then you’d make purchases just as you would with an unsecured card. As you maintain a balance after buying things, you’ll see your credit score improve.
Be Cautious With Credit Applications
Something else that a lot of people don’t know is that the more times they apply for credit, the more damage it does to their FICO score. While you might think getting an extra 10% off purchases in exchange for signing up for revolving line of credit at your favorite retail store is a great deal, it could come back to bite you.
Keep in mind that every time you apply for a loan, credit card or retail shopping card, the lender or issuing company checks your credit. With that, a hard inquiry shows up on your credit history. Too many inquiries look bad, which can bring the FICO score down significantly.
The Bottom Line
Using all of these strategies combined, you have the opportunity to improve your credit history. As a final note, the one thing that’ll damage your FICO score the most is late payments. Yes, everything else is important too, but this, in particular, is critical.