Your credit score isn’t a mysterious number. You have direct control over every single point. Some improvements will take longer than others, but there are a number of steps you can take to improve your credit score both immediately and in the future.
1. Order a Credit Report
You may receive a monthly credit score from a credit card company or get your score in a letter when you’re denied for credit, but your score doesn’t tell the whole story. You need to see your full credit report to understand exactly what’s impacting your score.
Things you’re looking for include total number of accounts, account balances, payment history, credit inquiries and negative items such as collection reports. Once you understand what’s reported on your credit report, you can begin your plan of attack.
2. Dispute Negative Items
Depending on your starting credit score, one negative item, such as a late payment or charged-off account, can drop your score 100 points or more. If you successfully dispute a negative item, your credit score will bounce right back up to where it was.
To win a dispute, the information on your credit report has to be either inaccurate or without adequate supporting documentation. Some common items to consider disputing include the following:
- Negative remarks that have the wrong date.
- Collections or charge-offs that were added back to your credit report after a bankruptcy or settlement.
- Accounts where you don’t recognize the lender or collection agency.
When you file a dispute, the lender or collection agency is required by law to show proof that the information is accurate. If they can’t do so, the negative item must be removed.
3. Stop Applying for New Credit
When trying to repair your credit, think like a doctor — first, do no harm. Every time you apply for new credit, your score for recent inquiries goes down whether or not you are approved. If you are approved, your average age of accounts also goes down because of the new account.
Recent inquiries and age of accounts add up to about 25 percent of your total credit score. That leaves a lot of room for improvement just by pressing the pause button.
4. Look Into Credit Limit Increases
The only possible new credit you should consider is a credit limit increase on existing credit card accounts. The amount you owe in relation to your available credit makes up 30 percent of your credit score. One or more maxed-out credit cards can tank your score.
The reason to look at credit limit increases but not other forms of new credit is that credit limit increases usually don’t have a negative impact. An increase doesn’t open a new account, so your average age of accounts doesn’t go down.
At many banks, a credit limit increase request won’t count as a credit inquiry, either. Look for online offers to increase your credit limit or a credit limit increase request button. Most banks will warn you if they will pull your credit report and make an inquiry. If they do, check your other credit cards for offers that won’t require a pull.
5. Pay Down Your Credit Balances
Generally, a maxed-out card of around 90 percent of the credit limit is terrible, 75 percent is bad, 50 percent is OK, 30 percent is good, and less than 10 percent is excellent. The faster you can get your credit card balances down to these thresholds, the faster your credit score will improve.
Note that even people who have never paid a dime in interest need to watch their credit card balances. Your credit score balance is calculated on the statement date.
If you run up $900 in charges on a card with a $1,000 limit, your credit score will plummet when the monthly statement is issued. The good news is that if you pay the balance in full by the due date, your credit card will go right back up when the next statement shows a $0 balance.
6. Use Your Credit Cards
Always having a $0 balance on your credit cards is actually worse than having a small balance. The reason is if you aren’t using your credit cards, the credit scoring model doesn’t know what you’ll do if you suddenly start using them. Always try to use your credit cards for at least one charge each month.
Some people mistakenly believe this means you have to pay interest to have a good credit score. You don’t. When you have a small balance on your credit card statement, you can still pay in full each month (before any interest accrues) and have an excellent credit score.
7. Set Up Automatic Payments
Late payments do a lot of harm to your credit score, but it’s easy to simply forget about a bill. To make sure this doesn’t happen, put each of your credit cards, loans and other monthly bills on auto pay.
If you’re worried about being able to pay in full each month, set up automatic minimum payments, and then pay the rest when you can. Payments are considered on time as long as you pay the minimum amount due.