Your credit score is an incredibly important number that impacts your ability to qualify for loans and credit. And if you're unhappy with your current score, you may be looking for ways to improve it. Luckily, there are plenty of ways to boost your score. Here are 4 ways to fix your credit score on your own.
How are credit scores calculated?
Before you can improve your score, it pays to understand how it's calculated. FICO, one of the most popular credit-scoring agencies, outlines the following 5 categories that make up your credit score.
- Payment history (35%): The most critical factor in your credit score is how you've managed debt payments. You'll receive higher points in this area for making payments on time and in full.
- Amounts owed (30%): Also known as credit utilization, amounts owed reflect how much debt you have compared to your overall available credit. The general recommendation is to keep your credit utilization below 30% of your available credit.
- Length of credit history (15%): A lengthier credit history is viewed more favorably by creditors and potential lenders.
- Credit mix (10%): You'll receive a better score for credit mix if you maintain multiple types of credit, like credit cards, installment loans, mortgages, or car loans.
- New credit (10%): Each time you apply for new credit, it triggers a "hard inquiry" on your credit report. In turn, it dings your score by a few points. You can keep marks in this area high by only applying for the credit you need and plan to use.
4 ways to boost your credit score
Review your credit report for errors
Your credit report is used to create your credit score, and any errors on your report can be unnecessarily weighing down your score. You can access your credit report for free once per year from each of the three major credit reporting bureaus: Experian, Equifax, and TransUnion.
When you review the report, look for errors like:
- Incorrect payment history where accounts are showing as late in error
- Invalid hard credit inquiries
- Accounts with incorrect balances
- Incorrect credit limits on accounts
- Multiple instances of the same debt
If you spot an issue, you'll need to contact both the credit bureau where you identified the error and the business that reported it. Each bureau has different reporting criteria, which you can find on their website, but disputes are handled by mail for the most part.
Pay off overdue accounts
Priority number one for anyone looking to improve their credit score is to catch up on any accounts that are considered past due. Even if you can't pay off the debt in full right now, start making smaller payments to get it moving in the right direction. Eliminating late payments and bringing accounts current is one way to give your score a boost.
Get credit utilization under control
If you're using a large percentage of available credit, it can consistently hurt your credit score. Work to pay down debts and ultimately try to keep your credit utilization below 30%. That means if you have $1,000 in credit, you should work to keep your revolving balance at less than $300.
Keep old credit lines open
As you pay off debt, it can be tempting to close out the associated line of credit. But leaving an old credit card open can actually help your score when it comes to credit history. Lenders like to see a long credit history with on-time payments as it indicates you're likely to be a responsible borrower in the future. But be sure to make small purchases every once in a while and pay them off to avoid account closure or any fees for non-use.
The bottom line
While it may take months to see the changes you're making reflected in your score, don't give up. There are plenty of ways to fix your credit score on your own, like reviewing your credit report for errors, making payments on time, managing credit utilization, and keeping lines of credit open. With proper financial management, you can boost your score and do so on your own terms. And that means the next time you apply for credit, you may receive more favorable loan terms and lower interest rates!
Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.
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Original Source: Advance America: 4 Ways to Fix Your Credit Score on Your Own