In the last two posts, I have discussed why your credit score is important and what affects it. Now let’s end with how you can improve your credit score.
How to improve your credit score
The best way to build a better credit rating is to use multiple credit cards once a month and pay ALL bills on time. Notice that this does not mean have a lot of debt nor running a balance and paying interest. If you do carry a credit card balance, ensure it does not exceed 25-30% of your credit limit.
- Pay down your credit card debt to lower your utilization percentage.
- If you are an excellent customer with one late payment, call your creditor and ask them to remove the late payment report. Sometimes they will for good customers.
- Ask your credit card issuer for a higher credit limit. This increases your score by lowering your credit utilization percentage.
- Review your credit reports and dispute any errors.
- Transfer balances to a new card. Opening a new card lowers your score in the short term by lowering your account length average. However, it increases your total number of accounts and available credit, and lowers your utilization percentage.
Poor or no credit score history
If you have poor or no credit history, the best way to develop or improve your credit score is to use a “secured” credit card. You pay a security deposit so it’s easy to get approved for a secured card because the lender doesn’t take any risk. Your credit limit is usually equal to your security deposit. If you fail to make payments, the secured credit card issuer uses your security deposit. Using your secured card responsibly and making ALL payments on time will gradually build up your credit rating over months or a couple of years. Once you have a good rating, you can use it to get regular credit cards and good rates on other loans.
It takes time to establish a record of responsible credit. If you are planning to take some of these steps to improve your credit score before applying for a loan, allow several months at least before seeing significant improvement.
Credit Score Scams
Beware of credit repair scams with guaranteed promises, extravagant claims, promises to remove negative but accurate information, unethical actions, and payment in advance. The Federal Trade Commission reports that they have never seen any of these extravagant claims work, but do receive plenty of complaints. For more information, see the FTC’s webpage and free pamphlet: http://www.consumer.ftc.gov/articles/0058-credit-repair-how-help-yourself . Credit repair is something you can best do yourself for FREE with the steps listed here and some time to allow them to work.
Credit Score Monitoring Services
There are many credit monitoring services that will alert you to problems for a monthly fee. Here is a cheaper, more effective alternative. For a small fee, you can request the three credit bureaus “freeze” your credit which prevents anyone (including you) from opening new credit in your name. When you want to open new credit or loans, you would need to request your credit be unfrozen and pay a fee, but it’s still cheaper than a monthly credit monitoring fee.
In the wake of the Experian data hacking scandal, Experian will offer free credit monitoring to you for free. In fact, this is the standard response after a hacking scandal. After Yahoo and so many others, everyone of us should be able to get this free deal from some hacked company. In light of this, let me end with a final piece of advice: don’t store your credit card on any retailer’s website as it seems just a matter of time before they are hacked, too.