A few weeks ago we talked about credit scores and how they are important. You can read the blog post here. Today I want to talk about how to increase your credit score. This is probably the question our loan representatives are most often asked. As I mentioned in the previous post, having a good credit score is very important. It increases lenders’ willingness to lend you money with lower interest rates. It can also have a positive impact on your living situation, cell phone service and utilities, such as electric, cable and gas. Increasing your credit score can be done, but it is going to take time and a lot of hard work.
1. Start by checking your credit reports: Each year the three major credit reporting agencies— Experian, Transunion and Equifax—are required to offer consumers one free credit report. I encourage you to take advantage of this. You may be surprised to find there are some mistakes in your report, which could impact your credit score. The Federal Trade Commission found that 1 in 5 people had errors on their reports. If you do find a mistake, you will have to dispute it with the specific reporting agency directly.
2. See where you need to improve: Take a hard look at your credit report or have a professional help you. Try to pinpoint where you need some work. Things like late payments, how much debt you carry, types of accounts and history, of credit applications can impact your score. Lenders like to see a variety of accounts such as a car loan, home loan and credit cards, to make sure you can handle different types of accounts. Also if a lender sees you have been applying to 10 other credit card companies in a short amount of time, they may become worried you are overextended financially. Try to keep your credit card balances at 50% usage or less on each card. Even if your total usage is less than 50% having one maxed-out card can hurt your credit.
3. Come up with a plan: Once you pinpoint where you need to improve, come up with a plan of action. If you have a lot of late payments, it may be wise to call your lender and try to agree on a plan to help you get caught up. Similarly, if you have outstanding collections on your account try to pay them off: just be aware they will stay on your credit report for seven years. Try to keep your credit card usage on the lower end and don’t try to open/close new credit cards or loans for a quick fix. The only way you are going to get your credit score to improve is by paying off the debt over time. Outside of on-time payments, paying down debt is the quickest way to see your credit score increase.
It is important to understand that you can increase your
credit score. It is going to take hard work and patience, but you can do it.
Know that here at River Valley we are always eager to help. If you have any
credit questions or tips, you can send them to Val@rivervalleycu.org. For more
financial tips and tricks, visit my blog at https://www.rivervalleycu.org/val.