As a person who writes frequently about personal finance and credit worthiness, you’d think that I wouldn’t be phased by shocking statistics like the one I just read the other day, but you’d be wrong. Unbelievably I discovered that nearly a third of people are more embarrassed of their credit score than they are of their weight, and that nearly two thirds of people don’t even know how to get a copy of their credit report. If you don’t even know how to check your credit score, how on earth will you be able to make sure that you can improve your score? Let’s get this out of the way right now, you should get your absolutely free credit report from www.annualcreditreport.com every year. This is the only truly free credit report you can get without subscribing to a credit monitoring service, and by law all three credit reporting bureaus must give you one free copy per year through this website. Once you get your credit reports you can use the tips I share below to quickly improve your credit health.
1. Under-utilize your credit cards
You should try and use your credit cards a good bit, but be very careful not to overuse them. When you use too much credit your score actually drops because the credit utilization ratio is a factor that contributes to your score. A rule of thumb is that you should never use more than 30% of all the credit available to you at any one time, and aim to use 10% or less to maximize your use ratio. Stay under 10% for just a couple months and you’ll see your score start to increase that fast.
2. Read your report and dispute errors
Unfortunately even if you are doing everything right, mistakes happen and when they happen on your credit report your score is impacted. After you check your report thoroughly if you’re unlucky enough to discover errors you must promptly dispute them with the credit bureau for that report. You can submit a request online and then work with the bureau to fix the errors and your score will benefit.
3. Get a new credit card
This simple trick lets you increase your total available credit that will help you to have some wiggle room on your credit utilization ratio I described above. Just be careful that you don’t open too many new cards and make sure you don’t start spending more simply because you can.
4. Ask for a higher limit
If you’ve held your card for a decent amount of time you can ask your credit card company to raise your limit for you. By asking your credit card company to give you more credit you can quickly and easily improve your credit utilization ratio. The worst case is they say no, so why not ask today?
5. Avoid closing older cards
Unless you have old unused credit cards that also have high annual fees, do not close your unused credit accounts. Canceling a card drops your score on its own, but another factor is length of credit, which is averaged across all your accounts, and when you close a card you diminish your credit utilization ratio because you’ve reduced the amount of credit available to you.
6. Pay your bills on time, or early
Your payment history makes up 35% of your total credit score so it makes sense that you ALWAYS pay your bill on time and if you can afford it to pay in full each month. If you can’t afford to pay the full amount of your bill then pay more than once a month. Your outstanding credit card balance is reported to the credit bureaus once a month so if you pay as much as you can more than once a month you’ll reduce the total amount that they report and help keep your score higher than if you only paid monthly.
7. Negotiate outstanding balances
Let’s say that you were a long time Visa cardholder and you suddenly lost your job and needed to live on your credit card for a few months while you looked for work. If you still have a significant balance on your card that you are struggling to pay off you can call the credit card company and ask to negotiate your bill. Try writing a letter offering to pay the remaining balance if the creditor reports your bill as “paid as agreed” or removes the negative credit rating from your report altogether. However, do not send in payment until you get the card company’s agreement to do this in writing. You can also ask to negotiate a lower payoff than you actually owe. Credit card companies have been known to make a good will adjustment to the outstanding balance in the hopes that you pay the whole thing off on a faster timeline instead of forcing them to spend money and send your account to collections.