Overview

Have you been wondering how you can increase your credit score? You don’t have to be a credit expert to know if your credit score needs improvement.

These days, your credit score can determine whether or not you qualify for an auto loan, a mortgage, and even to rent an apartment.

Before we dive into our tricks, let’s understand some background information.

Your credit consists of 2 separate beasts, your credit report and your credit score.

A credit report is a “log” of all your financing related activities in the last 10 years. Your credit report will include information such as all lines of credit, their balances, any negative marks such as late payments, and personal information about you.

The credit bureaus (Experian, Equifax, and TransUnion) collect financial information from banks and lenders to produce your credit report.

The credit report is then converted into a 3 digit score referred to as a credit score. Although there is a general understanding of how the 3 credit bureaus produce consumer’s credit scores, the exact algorithm used is unknown.


Credit Score Components

First, let’s see the components that make up your credit score:

Payment History (35%) 

This is the single largest factor that affects your credit score. Payment history includes any and all late payments, delinquent payments, and on-time payments.

Making your payments on time is the most important factor to increase your score.

Credit Utilization (30%)

Credit utilization is how much of your available credit you have used. Usually, experts recommend you do not “use” more than 30% of your available credit. For example, if your total credit limit is $1,000 per month, do not use more than $300 in credit.

Length of Credit History (15%)

This factor measures how long you have had credit available. The longer your credit history, the more predictable your spending habits are. The higher the average age of your accounts, the higher you will score in this factor.

Credit Mix (10%) 

This measures the different types of credit you have open. Repaying a variety of debt products (credit cards, mortgages, auto loans) can help you increase your score.

New Credit (10%) 

Opening too many credit cards in a short period of time is a sure fire way to lower your score. Only apply for new credit accounts as needed.

Having a less than perfect credit score is more common than you may think. A repossession, foreclosure, or a settlement could send your credit score and report down the drain, making lenders reluctant to lend to you.

If your credit score is in need of improvement, here are some of the top 5 steps you can take to give your score a boost.


Check for Accuracy

Humans make mistakes, and sometimes so do the credit bureaus. In fact, mistakes on a consumer’s credit report and score are much more common A TransUnion credit report with errors and a red backgroundthan you might think.

Independent studies have shown that almost 20% of Americans have an error in their credit report. Having an error in your report could mean getting denied for a mortgage or even a small personal loan.

If you haven’t done so already, get a free copy of your credit score from here from Credit Sesame and a free copy of your credit report from the government mandated website www.annualcreditreport.com.

By federal law, American consumers are entitled to receive their full credit report, for free, once per year, from each of the 3 major credit bureaus.

This means that technically, you can get 3 total credit report copies per year. We recommend doing this every 4 months for consistency.

If you are looking over your credit report and spot an entry you don’t recognize, such as a credit card inquiry or a loan application, you can file a dispute with the credit bureau that published it.

When you file a dispute, the credit bureau(s) will have up to 30 days to investigate and respond to your claim. During this time, they may mail you and ask for “additional information” relating to the dispute.

However, this is a common stall tactic aimed at extending the 30-day deadline, and you are not legally obligated to respond to their request in any way.

Once a dispute has been filed by a consumer, the credit bureau is then responsible for ensuring that the “negative” entry made into the consumer’s credit report is true and accurate.

This can also mean debt validation, where the credit bureaus investigate to see if you are the true owner of the debts that are placed on your credit score.

If the credit bureau cannot prove that a debt, credit card inquiry, or past due bill was yours, they are legally required to remove it.

This can result in an immediate increase in your credit score.


Credit Utilization

One of the biggest factors that can affect your credit score is credit utilization. Credit utilization accounts for 30% of your total credit score, only behind payment history at 35%.

But what is credit utilization? Credit utilization is how much of your available line of credit you use on a monthly basis.

For instance, if your credit card has a $1,000 monthly limit and your current balance is $400, you have utilized 40% of your available line of credit.

Ideally, consumers should not use more than 30% of their available credit if they wish to maximize their points in the utilization category.

If you are struggling and utilizing a large amount of your credit (over 60%), then you may want to consider asking for a credit limit increase.

A credit limit increase will help your utilization rate because it increases the line of credit available to you.

Based off the previous example, if your credit limit increases from $1,000 to $2,000 per month and your balance is still $400, your utilization ratio comes down from 40% to only 20%, well within the safety level.

It’s important to note that anytime you may ask for a credit limit increase, your lender will perform a “hard credit check”. A hard credit check means that the lender pulls and reviews your credit.

A hard credit check is performed for almost all forms of financing, including credit cards. If you ask your credit card provider for a credit limit increase, you may see a small initial drop in your score due to the hard credit check being performed.


Open a Secured Credit Card

A secured credit card is one of the best kept secrets to increasing your credit score. A secured credit card is a credit card that you must place an upfront A secured credit card in black with a red backgrounddeposit for.

For instance, if you open a secured credit card and place a $400 initial deposit, $400 will be your credit limit for the month.

Unless you add more funds to the deposit, your “limit” cannot be increased if you’ve maxed out your card.

You must first repay your balance owed before your limit can be renewed.

Secured credit cards are great for those who fear holding onto a credit card out of lack of self-control. For many consumers, it can be hard to avoid the temptation to spend your entire credit limit.

A secured card is a great tool that allows you the freedom to have a credit card all while providing you with protection through your deposit.

If you do not make a payment on a secured credit card, the company can use your deposit to cover the funds.


Clear Up Old Accounts

The single largest influencer on your credit score is your payment history, accounting for 35% of your total credit score. Past due and delinquent payments are a sure fire way to bring down your credit score.

If you have taken a look at your credit report and see account(s) that are in collections, it’s time to wipe them out.

If you have negative marks on your credit report from debt collectors and collection agencies, give them a call. If the debt is extremely old, first send them a letter of goodwill deletion.

A letter of goodwill deletion is simply a letter that asks your creditors/collectors to remove a negative entry out of “good will”. Although it may seem like a long shot, many consumers have had success in just simply asking that a negative entry be removed.

If the collector does not follow through with goodwill deletion, make them an offer. Debt collectors and collection agencies often buy debt for pennies on the dollar. Their hope is to get you to repay the debt so they can collect a “fee” from the loan originator.

Contact the debt collector(s) in charge of your account(s) and see if you can negotiate to have the negative entry removed. You can offer to pay 50% of the debt owed in exchange for having it removed off your credit report.

If this does not work, the collection agency may require that you pay your past due bills in full before any negative entries can be removed.


Get a Credit Card

A credit card may actually be the quickest way to rebuilding your credit. If you’ve learned how to borrow money responsibly, a credit card might be your best bet.

Inquiring for a new credit card may lower your score initially due to a hard credit check being performed. However, if you make your payments on time and in full, your credit score will rise.

Credit cards help consumers by increasing their line of credit. When your line of credit increases, you can expect your credit utilization ratio to decrease.

Once you begin to make your payments on the credit card, it will be reported to the 3 major credit bureaus who will increase your score accordingly.

However, keep in mind a few key points. First and foremost, you should not start to send out applications to multiple credit card companies.

Often times, a large number of credit inquiries can scare lenders, since they may think that you are in a financial bind and in desperate need of cash.

Also, getting a credit card is a large responsibility and must be managed like one. Falling behind on payments and constantly maxing out your credit card is a sure way to lower your score.


Become an Authorized User

Becoming an authorized user is a quick and secure way to boost your credit score. An authorized user is somebody who is allowed to access another person’s line of credit, whether its a family member or a close friend.

What’s the best part about being an authorized user? The fact that you can boost your credit without even owning a credit card yourself!

When you become an authorized user, you are essentially “piggy backing” off of somebody else’s credit card payments.

When the main account holder makes their credit card payments on time and in full, you will experience the same exact positive benefits to your credit score as the main account holder.

It’s vital to be cautious of who you ask to become an authorized user with. If the main account holder does not pay their bills on time and has a history of credit card debt, they could be drag down your credit score even further.


Keep Old Accounts Open

Often times, when consumers are faced with a mountain of credit card debt or a poor credit score, their first instinct is to immediately cut up and cancel their credit cards.

However, canceling a credit card can have negative effects, especially older accounts.

Credit age (often referred to as length of credit history) is a small yet important factor when it comes to your credit score, coming in at 15% of your total credit score.

The higher the average age of your credit accounts, the higher your score will be. Lenders like borrowers with longer credit histories since their spending and repayment habits are more predictable, and thus, less risky.

If you have a credit card that has been open for more than 5 years, its best to keep it open, especially if there is no annual fee. You do not have to use the credit card in order to obtain the benefits of a longer credit history.

Keeping old credit card accounts open also offers another benefit. When you keep your old credit cards open, you will still have access to their lines of credit. Having a line of credit available is a great way to lower your overall utilization rate.


Change it Up

Most Americans tend to have a very limited credit mix. If you want to obtain a high credit score, you’re going to have to mix up the types of credit you have.

Even though credit mix is a small factor in your credit score (10%), you will still need to maximize it in order to obtain a perfect score. Lenders like to work with applicants that have demonstrated an ability to pay their bills on time, no matter what type of credit account it may be.

Essentially, credit mix refers to the different types and forms of accounts you have open. These accounts can include credit cards, mortgage payments, student loan, car loans, and more.

If you are a consumer with a limited credit history, your score may be more impacted by your credit mix than most with an established credit history. However, it is important to note that consumers should not just rush and begin applying for diverse lines of credit.

Opening new accounts also affects other aspects of your credit score, including the average age of a consumer’s credit history.


Reducing Total Debts

This is much easier said than done, but paying off your debts is much moreA credit score scale with a maxed out credit limit enjoyable than raising your credit score. The first step to reducing total debts is to sit down and budget your expenses and income.

Believe it or not, many Americans have never created a monthly budget for themselves.

Once you’ve sat down and established your budget, set a goal for how much debt you wish to payoff in a certain period of time.

Using a credit card to buy groceries, gas, and other essentials is a great way to build credit, as long as you can pay the bill at the end of the month.

Try to pay off the credit cards with the highest interest rates first, all while working to make minimum payments on your other cards. Once you’ve paid off one, simply move to the other.


Past Mistakes

If you’re one of the millions of Americans that filed for bankruptcy, fell into foreclosure, or gone through a short sale, youre probably wondering when this credit score nightmare will end.

Know that when one of these mistakes hits your credit score, you’ll feel the most impact right away. Thankfully, over time, the impact of the negative entry will lose its effect on your credit score.

Federal law states how long a negative entry can be on a credit report, which is 10 years. Bankruptcies, settlements, foreclosures, and short sales will be taken off your credit report after 10 years.


Reduce Applications

Although having a wide variety of credit available to you is a good thing, you should not simply apply for credit cards left and right. This is especially true for store-branded credit cards, which often lure consumers in with a significant discount on their purchase if they sign up.

Each and every application you make will trigger a hard credit check, which will lower your score slightly.

Hard inquiries will stay on your credit report for two years. Although their impact is small, applying for 8 credit cards in a week is a sure fire way to lower your score. Check your credit report for any hard inquiries you may not recognize.

If you spot a suspicious inquiry, contact the lender to see what the inquiry was for.


Complete a Balance Transfer

Credit card debt is one of the largest forms of debt haunting Americans. Credit cards can carry aggressive interest rates of 15% or more if you don’t make payments on time.

If you’ve been slapped with high interest rates and are unable to fully pay your bills because of this, it could be time for a balance transfer.

A balance transfer is just what it sounds like. You take your balance owed to your credit card company and transfer it over to another credit card provider. The best part about this is that most balance transfer cards offer 0% APR for the first year.

This can aid in helping you make your payments more affordable, and thus making you more likely to pay the bill in full. However, its important to note that you cannot compelte a balance transfer within the same provider.

For example, you cannot transfer a debt on one Citi Card to another Citi Card. It must go to a new credit card company like Discover.


Final Note

All in all, rebuilding your credit score can seem like a daunting task. However, by taking the right steps towards responsible borrowing, you can be certain that your credit score will increase.

Destroying your credit score takes time and so does rebuilding it. Even though it may take a few months before you see a substantial gain in your score.

In the end, you’ll be able to borrow money at an affordable rate, qualify for an auto loan, and more!

If you’re ready to rebuild your credit but don’t know where to turn, CrediReady can help. Our credit repair experts have helped thousands of Americans get the score they deserve.

Take a moment to fill out our free no-obligation credit repair inquiry form to speak to a local credit repair expert FOR FREE!