How to Improve Your Credit Scores

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If you think of your credit scores as mysterious numbers that you may never understand, you’re not alone. Many consumers are shocked when they check their scores and realize that their credit is considered below average or poor. Rather than writing it off as something over which you have no control, follow these tips to understand and improve all three of your credit scores.

Responsible Credit Card Use

If you’re starting out with no credit on your report, obtaining at least one credit card can increase your scores immediately. You may have to accept a rebuilding card with an annual fee or open a secured account to get started, but responsible use in the future will qualify you for more lucrative cards. If you already have credit on your report but your scores suffer due to late payments, closed accounts, or high balances, you need to show responsible usage for a period of time before your scores will recover.

Regardless of your starting point, there are five ways to show responsible credit usage:

1. Keep your balance below 3 percent of your maximum credit limit.
2. Don’t close credit cards that you no longer use. The available credit will help lower your overall utilization percentage, allowing you to carry a slightly higher balance on other cards when needed. You may consider closing an account to eliminate the yearly fee after securing cards without a fee, but understand that you may see a short-term dip in your credit scores as your overall credit availability lowers.
3. Only accept new credit card offers if you actually need the credit.
4. Keep your oldest credit cards active as long as possible because length of credit history is an important factor when determining your credit scores.
5. Avoid paying one credit card with another unless you’re moving your full balance to a card with a lower interest rate. Shifting debt from one card to another does nothing to reduce your overall utilization rate.

Manage Delinquencies Effectively

There are a few types of delinquencies that may drag your credit scores down, including late or missing payments, derogatory closed accounts, public records, and collection accounts. You have to obtain a copy of your credit report from all three bureaus because some of your debts may only show up on one or two of your reports.    creditscore

Once you have those reports in hand, take these steps to start improving your credit score:

1. Dispute inaccurate information.
2. Pay off small debts if possible. Try to negotiate a pay-for-delete arrangement directly with the creditor. Not all companies will accept those terms, but it’s always worth your time to ask. There are services that claim to delete derogatory information from your report for a fee, but that isn’t a legal practice that you should consider. It’s better to obtain the contact information for the lender or collection agency from your report and pay them directly. At the very least, they should update your report to display paid status.
3. Work toward paying off large debts, starting with the smallest amounts. This is referred to as the snowball method of debt reduction. You may also negotiate payment arrangements or reduced payoff amounts.
4. Make sure all of your bills are paid on time to prevent new derogatory listings and late payment reports. If you have medical bills or other expenses that you can’t pay, arrange to make payments so that they aren’t delinquent or passed to a collection agency.

While you may see some big increases in your credit score at times, it can take months or even years to get your scores to numbers that you consider acceptable. Rather than thinking about it as a math game that you will never win, think of it as a system that you can master by using credit responsibly and living within your financial means every month.

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