How to Improve Your Credit Score

Introduction

It’s no secret that credit scores are important. They can affect whether you qualify for a loan, what interest rate you get and even how much insurance costs. But did you know that if your score is low enough, some landlords won’t rent to you? In other words, having good credit is pretty much essential to make it in today’s world. However, if your score has taken a hit because of medical bills or job loss — or any number of other reasons — don’t worry! There are lots of things you can do to improve your credit score quickly and easily. And even if your current situation isn't ideal, there are still steps you can take now to prepare for when something does happen down the road (like job loss or an unexpected expense). 

See where your credit stands.

To begin, you’ll want to know where your credit stands. You can do this by asking for a free copy of your credit report from each credit bureau (there are three major ones: Equifax, Experian and TransUnion). This will give you a full picture of where you stand. If there are any errors on your file and/or if there have been recent accounts that have been opened or closed without your knowledge, this could be contributing to a lower credit score. Once you’ve reviewed the reports and made any necessary corrections, it's time to take stock of what needs improving to put those points back in place! If you would like to keep tabs on your reports and FICO score on a monthly basis in preparation for a large purchase such as a home, check out industry-leading identity theft protection and credit monitoring products at IDIQ. 

Know what hurts your score.

Knowing what hurts your credit score is the first step in improving it. Credit scoring systems are complex, so there are many factors that go into determining your credit score. However, there are a few common mistakes that people make that can really hurt their rating:

• Late payments
• Maxed-out credit cards
• Too many credit inquiries (when you apply for new loans or open new lines of credit)
• Too much debt (the total amount you owe compared to how much money you earn)
• Too many new accounts opened within a short period of time

Pay your bills on time.

Pay your bills on time. Delaying payments can cause serious damage to your credit score, as well as late fees and penalties from credit card companies. Make sure you're not one of the 1 in 3 Americans who pays their bills late at least once a year by making arrangements with creditors at least 2 weeks before their due date.

Pay down credit card debt and avoid new debt.

Pay off your credit card debt. Avoid new credit card debt. Pay off any other debts, such as car loans and student loans. Avoid store credit cards, car title loans, and payday loans. 

Don’t close old accounts.

The next pitfall to avoid is closing old accounts. Having an old account with a long history of on-time payments can be very beneficial to your score. If you close this account, it will be replaced by a new one with a short history of payments. In order to rebuild your credit score, you should keep all of your open accounts open and continue making on-time payments for as long as possible.

Ask for a credit limit increase.

If your score is above 650, you'll have no problem getting a credit limit increase. If not, though, it's important to know that asking for one may hurt your score and make it harder to get approved for other loans in the future. It's also worth considering whether or not you really need this extra money right now. Requesting an increase on a card with low limits will only hurt your credit utilization ratio in the long run if you don't pay off the balance before it's due again. That being said, if you want to ask for an increase anyway—and there are plenty of good reasons why that might be necessary—here are some tips:

• Call up your bank and mention your on-time payment history they will be looking at when they consider whether or not to give out more credit.
• Explain why more available funds are needed by 
• Ask them about other ways besides increasing limits

Keep unused cards open.

According to a study by the Federal Reserve, 30% of consumers who closed an account saw a drop in their credit score. That's because closing an old card will increase your utilization rate—the amount of debt relative to total available credit. Keeping unused cards open also helps you demonstrate that you're responsible with money and can handle additional lines of credit. If you want to close an old account, just be sure that it has no annual fee or balance on it first.

Get a secured card if you need one.

If you don't have a credit history and need to build your credit, or if you have bad credit and want to start building it, a secured card can be a good way to go. According to Bankrate.com, secured cards are designed for people who've had trouble qualifying for other types of cards. You'll need to put down a deposit to open the account—which acts as collateral—and then use the money in the account as your spending limit. The higher your deposit is relative to your spending limit and other factors (like whether or not you're younger than 21), the better chance you'll have at getting approved by companies like Discover or Capital One. The key difference between secured cards and unsecured ones is that if you don't pay the full balance each month on time, any interest charges will come out of this deposit. So make sure that whatever charges you use your secured credit card for do not exceed the amount you will be able to pay off in a given month.

Check for errors and fix them.

It's important to check for errors on your credit report. Make sure that everything is accurate and up-to-date by ordering a free copy of your credit report from each of the three reporting agencies (Experian, Equifax and TransUnion) through AnnualCreditReport.com or by calling 877-322-8228. You're entitled to get one free copy of your report from each agency every 12 months. If you find an error in any of the three reports, file a dispute with that agency as soon as possible. The credit reporting company has 30 days after receiving your dispute letter to investigate it and respond back to you with their findings; they must also include any negative information they've added, along with instructions on how it can be removed from their records within 60 days if necessary. If there's something wrong on your record that can't be removed with a quick phone call (like fraud), follow up regularly until it's finally gone! Once you've checked for errors and fixed them where possible, don't pay for an annual subscription service like Credit Sesame or Mint just yet—you'll want these services in place once all of this hard work has paid off!

Don’t open too many new accounts at once.

When you open several new accounts at once, it can be difficult for lenders to keep track of everything. Even if all the accounts are legitimate and in good standing, it’s still a red flag for potential lenders that you're applying for too many things at once. If you want to open lots of new accounts in a short period of time (which is not recommended), do so only when your credit score is high enough that no one will automatically reject your application based on low creditworthiness. The amount of new accounts that people with different levels of good credit can open varies. If you have limited or bad credit, don’t assume that opening four or five new cards will help improve your scores; doing so could actually hurt them further by leaving more room for errors and mistakes down the road.

You can improve your credit score significantly in a few months, not years.

Your credit score can be a number that's good, bad or in between. The good news is that your credit score can improve quickly and dramatically. The higher your FICO score is, the more likely you are to be approved for loans. But if your FICO score falls below 600, it can cost you dearly when it comes to interest rates on loans (like mortgages) and even when applying for jobs. The lower your credit scores drop below 650, the more expensive it will be for you to borrow money and buy things like houses or cars because lenders see these as riskier lending decisions than those made with someone with higher scores.

Conclusion

I hope this post has given you the confidence to take on your credit score one step at a time. You don’t need to be perfect or know all the ins and outs of credit scores, but you do need to set yourself up for success by making good decisions in all aspects of your personal finances. With some careful thinking and planning, you can improve your credit score and boost it into the range where lenders will start taking notice—and that’s what really matters!

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