There are no two ways about it; raising your FICO credit score is hard. It can actually seem like an insurmountable task for the many unfortunate individuals saddled with a history of poor financial decisions.
There’s no way to game the system. There are no fancy tricks that make the process easier. But there is good news: It is possible to raise your credit score. It’s possible to shave away the impact of poor past financial decisions bit by bit, until you’ve proven to creditors you’re no longer a liability.
It’s also worth noting that you aren’t alone. The average credit score in the United States is 695, meaning that half of the people within the United States have a credit score below that. It’s estimated that 30 percent of Americans have what would be considered “bad” credit. This means that you aren’t a mere anomaly in a sea full of financially sound folk.
What it does mean is that you have a lot of work to do to demonstrate you’re financially responsible, like many other Americans.
Help Creditors Believe You’re Financially Reliable
Here are eight steps you can take to raise your FICO credit score.
1. Check for Mistakes
It’s wise to check to ensure there isn’t incorrect information on your credit report. Incorrect information can be detrimental enough to impact your score and limit your financial options. And unfortunately, it’s not uncommon.
A study by the Federal Trade Commission showed that 1 in 4 Americans have identified mistakes on their credit report. Furthermore, 1 in 5 was able to get these mistakes corrected by disputing them.
Common mistakes include wrongly attributed or duplicate accounts, incorrect information regarding late or missing payments, and erroneous personal information. There may also be outdated information regarding your credit utilization or balance.
There are several steps to follow when trying to dispute information on your credit report. The first step is to get a copy of your credit report.
Next, you should contact any one of the major credit bureaus: Equifax, TransUnion or Experian. You will need to explain the error, include information that supports or validates your claim and send the letter to one of the bureaus. Sample letters available online can help you do so.
2. Pay on Time, Every Time
It might seem obvious, but it bears repeating: pay your bills on time. It’s not something that will transform your credit report overnight. What it is, however, is something that has the greatest impact on your credit score overall. Your payment history is 35% of your score.
You can demonstrate a shift toward financial responsibility by proving you can consistently pay your bills on time. Various things can help you achieve this. This includes things like payment reminders and automatic billing. Give them a try if you have a tendency to miss your payments from time to time.
3. Avoid Late Payments, Especially Beyond 30 Days
Again, late payments are very bad. Even paying a few days late can be bad, but it won’t be nearly as bad as paying beyond 30 days late. This is because a lot of creditors don’t report late payments if they are under 30 days old. Still, creditors will report debts of at least 60 days old.
The way credit scores are calculated make 90-day late payments appear as much worse than 30-day late payments. This is especially true if those 30-day late payments are infrequent.
Many credit card companies now allow you to pick a due date that works better for you. This is another way to avoid failing to make your payment on time.
4. Aim for a Higher Limit Instead of a New Card
Your credit utilization is a number that indicates how much of your available credit you are currently using. Creditors like to see this number kept below 30 percent, and ideally below 10%. If you are worried about your credit utilization, you might think it best to apply for a new credit card. The problem with this is that attempting to open a new credit card will generate a hard inquiry that will impact your credit score negatively.
Therefore, it is better to ask for a credit limit increase as opposed to opening a new card for the sole purpose of raising your credit score.
5. Keep Your Oldest Accounts
When deciding to close a credit card account it makes sense to close your newest rather than your oldest account first. An older, well-managed account is a better indicator of financial responsibility than a newer account you’ve barely used. The age of your credit history factors into your credit score. This is the average of your newest and oldest accounts. The idea is that an older credit history means you have accumulated more experience with using credit. This is seen by creditors as a good thing.
6. Pay Down Your Credit Cards and Revolving Debt
Credit utilization makes up 30% of your credit score. There are some accounts that don’t factor in credit utilization. These accounts are installment CPN loans like mortgages or auto loans. It would be unfair to ding a consumer for having a mortgage that covers 80% of the value, for instance. Only revolving debt, typically credit cards, have their credit utilization count towards this part of your credit score. If you have a maxed out card, this can drop you up to 45 points (if you have a good score). If you have an average score, you can lose up to 30 points.
Not only do you save on paying interest each month (at usurious rates of up to 29%) , but paying down your cards to an optimum rate of 7%. Another little known fact is that having an equity line of credit on your home counts toward your credit utilization. Surprised? Well, an equity line of credit is a revolving loan, despite the fact that it is secured by your home. If you have one of these, and your balance is high, you might consider refinancing your equity line of credit into your first mortgage.
7. Take Advantage of Score Boosting Programs.
In general, things like rent, utilities and phone bills do not appear on your credit report, which is unfortunate if you make the payments religiously on time. If you have a limited credit history, there are two programs, Experian Boost, and UltraFICO, that can help you build a meager credit report with helpful payment records.
Experian Boost allows you to get credit for phone and utility bills, putting the payment information directly on your credit report.
UltraFICO allow you to add banking information to your credit score, things like savings rates and evidence that you do not bounce checks or have other negative balances.
8. Time Your Applications Carefully
Every time someone pulls your credit report, an inquiry is recorded on your credit history. There are two types of credit inquiries, soft and hard. A soft inquiry happens when an existing creditor or you pulls your credit report. These do not have any negative consequences. However, if you apply for new credit with a bank, credit card company or auto financing, you receive a hard inquiry on your credit report. In general, the effects of a hard inquiry last between 6 and 12 months.
The thing to remember is that these aren’t “hacks” that will improve your score overnight. Rather, they involve learning more about how your credit score is determined and then changing your behavior to secure a higher score. If you have a low credit score, time truly heals all, as long as you practice financially sound behavior that will reflect that you’re a safe bet for creditors.