It’s easy to slip down the credit ratings, especially if you’ve missed the odd credit card payment or fallen behind on a loan. So, what can you do to bump up your credit score? Most quick fixes don’t work but is it possible to take the express approach to repairing your credit rating?
Need credit but worry about your rating?
We live in a world where instant gratification rules! We all want to be rich, thin and clever but doing what it takes to build a successful business, sculpt a beautiful body or complete a college course is hard work and time consuming. Happily, not all quick fixes are non-starters. Take your credit score. If you want to feel confident when making an offer on a house, scoping out a new car or taking a loan for some home improvements, but fear a poor credit score might stop you in your tracks, there are some practical things you can do to improve your financial standing Your credit score impacts almost every aspect of your life – from taking out a store card to getting a good rate on your mortgage. The problem is, many Americans still have ‘bad’ (<600) credit scores that not only make accessing credit more difficult but also make it likely that interest rates on any credit you do get will be higher than you’d like. So, how can you give yourself a credit score boost?
Knowledge is power
You need an accurate perspective of your creditworthiness, so the first step is to get a copy of your credit report from any of the major credit reporting bureaus: Equifax, Experian and TransUnion. You’re allowed one free copy per year from each which means you can order one every four months, if you get the timings right. Check everything with a fine-tooth comb, paying particular attention to any accounts that show late payments or unpaid bills. Don’t assume the record is infallible - dispute any errors you find and ask that your report be amended accordingly. Even if you did have a legitimate delinquency recorded, you can negotiate with your creditors to revoke any debts that went to collection or even offer to pay an outstanding balance, providing the creditor will show it has been paid. Some creditors will make a ‘goodwill’ adjustment if you’ve had an otherwise spotless payment record. While you’re at it, make sure your reported credit limits are current – you don’t want to look as if you’re maxing your limit each month.
Optimize your credit utilization
It’s estimated that a third of your credit score is based on the amount you owe, compared to the amount of credit you have – a ratio known as credit utilization. For instance, if your total credit limit across all your cards is $6,000 and you have a $3,000 balance, your credit utilization is 50%. There are lots of theories about what the best level of utilization is, but it’s generally thought prudent to keep this figure under 30%. Based on our $6,000 example limit, that would mean keeping balances at less than $2,000. If you owe more than the optimum percentage, a quick fix would be to pay down the balance so it falls in line with recommendations - even if you have to pull some overtime or take on an extra shift or two till you’ve reached your goal. If you really can’t pay down your balances, change the parameters by asking your lender for a credit limit increase (but only if you won’t be tempted to use it!).
Open a new account
It’s no bad thing to have more credit cards than you actually need. For one, it will increase your overall limit, giving you a bit more leeway with your utilization rate (see above) and, if you only have one or two cards at the moment, it will also open up new payment options (having Visa as well as MasterCard, for instance). If you don’t think you’d qualify for a regular credit card, you could ask your bank if they’d offer a secured card backed by a cash balance or consider becoming an authorized user on a friend’s or relative’s existing credit card account. The key thing here is not to see your new card as a fresh line of credit but rather as a tool for proving that you’re a responsible user of credit. A card that you pay off in full each month shows fiscal responsibility and will improve your credit score no end. Be aware that too many new accounts can make you look like you’re planning a retail binge — apply for only one or two new cards if you’re going to go down this route.
Pay twice over
A neat trick is to break your monthly payment into two payments. Here’s the rationale. Even if you pay your card off in full each month, if you run up a hefty balance you could fall foul of the way creditors report your spending as it could look like you’re overusing your credit. As an example, let’s say you have a card that you use for all your spending – perhaps because you earn rewards on all your purchases – and regularly hit your credit limit before paying it off in one fell swoop. Trouble is, the credit card company reports the statement balance to the credit agency each month which makes it look like you’re using 100% of your available credit. By sending in payments twice a month, you’ll keep your running balance lower and appear to be a better credit risk – without losing your purchase rewards! Use a combination of these strategies and you should see your credit score rise. You won’t see overnight results but you’ll reap the rewards of your efforts a few months down the line.