How to Raise Your Credit Scores

Credit Scores

Tuesday 24, 2017

If you have recently applied for a loan and your application was turned down, the main reason for this could be because your credit score is very low. A lot of people have made poor financial decisions in the past that reflect on their credit scores. If you are planning to buy a home or a car, or you want to apply for a new credit card, you need to be absolutely sure that you have a good credit score. If not, your application may be turned down or you might get credit at higher interest charges. To avoid all this, it is good to know how you can raise your credit score.

Your credit score is determined by the information that is in your credit report. It changes as new information is added to that report. If you handle credit in a responsible manner, this might affect your credit score positively. If on the other hand you continue doing things that appear negatively on your credit report, for instance paying bills after the due date and maximizing on your credit card limits, you continue hurting your credit score.

For people with a low credit score at the moment, it is time to work on raising your score. There are so many benefits that come with this, including being able to access affordable loans, getting approval for credit applied for, being able to access affordable insurance services, getting utility services without paying a deposit amount, ease of renting a house or apartment among other things.

Here is a 10 step plan that can help you raise your credit scores in a few months:

1. Get your credit reports and check it out for errors

Your Credit report carries everything that credit reporting bureaus use in calculating your credit score, therefore this is the right place to start. There are basically three nationwide credit reporting agencies, namely Experian, Equifax and TransUnion. These are the companies whose reports you need to go through to establish if there are any errors as this may be the reason why you are scoring low in credit.

Research has proven that more than 79% of all credit reports contain incorrect information. This means that a lot of people have credit scores that do not really reflect their creditworthiness. Once you obtain all the three reports, ensure that you go through them well, from one item to the other. If there will be any damaging errors, for instance a late payment that was actually paid on time, ensure that such errors are corrected as soon as possible.

What you do is to send the credit reporting agencies a certified letter showing the inaccurate information and documents that prove what you are saying is actually true. These agencies, together with the banks and other companies involved are required by law to correct such information immediately it is pointed out to them. This means a boost to your credit score in no time at all.

2. Automate your bill payments

One of the negative items you will find in a credit report is late payments. Automating bill payments ensures that you never miss a deadline and this will positively impact your credit score. Do not allow yourself to be late to make any payments, even if it is just a few days late. It is a good thing that automation of bill payments including mortgage, utilities, auto loans, payment for visa accounts and many more common credit obligations is allowed by many banks. This lessens your burden of having to keep checking and rechecking due dates just so you can make early payments.

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FICO pays a lot of attention to whether or not a person takes due dates seriously, therefore if you make it a habit of paying late, you end up hurting your score further. This damage can take up to two years for your credit score to go back to where it was, which is a long time especially if you will need credit within that time period.

If you make sure that your bills are all paid on time, you will have a good credit score in just a few months.

3. Do not lose hope if you have missed payments

There are so many reasons why many people miss payments, both valid and invalid. If you already have missed payments, do not lose hope in trying to raise your credit scroe. If your missed payments have really affected your credit score, there is still hope that it can raise in a year or two. What you do is to try to get current as quickly as you can. Check out all your missed payments and come up with a plan on how you will update them in order to get current soon enough. When this is done immediately, you should see a great improvement on your credit score in about 6 months.

The amount of negative weight that delinquencies carry on your credit report lessens with time, therefore if you update your payments, the items will slowly disappear from your credit report. In no time at all, they will have no effect on your credit score.

4. Try to maintain low credit balances

How much you owe others is very important to credit reporting agencies whenever they are calculating your credit score. Good thing is that you can easily control this and this is the easiest way to raise your credit score. For those with credit cards, do not be quick to use your credit limit to the maximum, because this leaves you with a higher debt to repay afterwards. If you are able to use your credit cards only when it is important, you will use a lower percentage of your credit limit, and this leaves you with less debt to repay every month.

You can also raise your credit score if you tried to pay down all your credit card balances as quickly as you can. If you are using more than three cards, you can pay down some of those cards that you do not use so much, then leave just a few to use in case of emergencies. This way, you will not have too many debts to repay every month, which might leave you with a lot more debts than you can manage to pay.

5. Spread your balances

Even if you are trying to minimize the amount of debt you have, it is not wise to pay up all the other debts, then be left with only a few but large balances to clear later. It helps your credit score a lot if you have several small balances than when you have a few but large balances.

Another mistake many people make is in taking new credits in order to pay off the older credits. This makes your credit score even worse. It is good to try to minimize the balances as much as you can, without opening more credit accounts as this reflects badly on your credit report.

Again, when you have a few balances here and there, it shows that you can easily manage different types of credits and this is a good thing when you start dealing with loan lenders.

6. Pay your credit card bills earlier

The amount of money owed on your credit report is based on the balances that appear on your most recent statements. A lot of people wonder why they still have low credit scores yet they pay their bills in full every month. What happens is that if you have high balances, your amount owed will still be high by the time the statement is out, which is in most cases before you make the monthly payment.

What you do in order to better your score is to make an earlier payment, so that your balance will be much lower when the statements are out. The statements with a much lower balance are the ones that are sent to credit reporting agencies. This will definitely help raise your credit rating.

7. Do not get rid of your old accounts yet

Old credit reports help a lot in the calculation of your credit score because they show that you are not new to credit, which is a good thing. Try to keep these old accounts as long as you can. If they are closed, it shortens your credit history and this affects your credit score so much. If you need to close some accounts, the most recent ones will be much better than an old one that was cleared well.

If you are trying to close an old account because of a negative item that was listed on it, say a late payment, it will not help much either. Closing such an account will not get rid of the negative item from your report. The late payment listing will still be there. It is better to deal with that negative item than close the old account altogether.

8. Show that you can be responsible

Another easy way to raise your credit score is to demonstrate that you can handle credit responsibly. This can be done in many ways, for instance borrowing just what you need and not more and paying back what you borrow on time. A responsible person will also not open too many credit accounts at the same time even if you are trying to create a variety of credit. In as much as having different types of credit accounts open is good for your credit history, opening too many accounts at the same time shows that you are in a financial crisis and this affects your credit rating. Only stick to credit accounts that you really need.

Fico Credit Chart

Mistakes to avoid

There are so many mistakes that people make when trying to raise their credit score. Some of these mistakes will cost you a lot of money. Others will affect your credit rating. If you need to keep your credit score up, here are some of the mistakes you should be on the lookout for:

1. Trying to apply for credit that you will not be approved for

Your credit report needs to show a good credit history, that is why it is important for some people to apply for loans even when they are not sure they will get approved for. This is not good especially to a person with no access to credit. You do not try to apply for loans hoping that you will get an approval until you get a lender that will agree to loan you.

If for instance you have applied for a credit card and the application was denied, the denial will not show on your credit report but the inquiry will. Even if you have not been approved for that card, this will still affect your credit score.

The last thing you want is to risk getting so many such inquiries on your report. If you really need a credit card and you are sure you will not get one, go for a secured one.

2. Carrying a balance and paying interest

All credit card companies love it when their customers carry balances from one month to the other as long as they are paying interest on them. A lot of people do this, without taking time to think of how much they are hurting their credit scores. You actually do not get any boost on your credit rating by carrying a balance forward from one month to the other. What you do is to just benefit the credit card company, because you pay interest on these balances every month.

For a good score, you have to ensure that you establish a good track record of paying bills on time. This will help a lot considering that your payment history accounts for 35% of your credit score. If you have been carrying over the balances because it does not seem a big deal to your credit card provider, you should start thinking of how much it is hurting your creditworthiness.