Maintaining a strong credit score is more important now than ever now that credit has tightened and loans are harder to obtain. Without a strong credit score, a loan applicant is likely to either be denied financing altogether or required to pay interest rates well above the rates paid by borrowers with good credit scores. You can’t change the past and if your credit score has some room for improvement, repairing it should be one of your top financial priorities.
1. Obtain Your Credit Report: It’s difficult to address your credit score if you’re unaware of what’s on your credit report. There are two main reasons to check your credit at least once a year. The first is to make sure you are aware of the score potential lenders see when they access your credit report. The second is to check for mistakes and potential fraud situations that need to be corrected or addressed by the credit bureaus. You should order all three available credit reports and there are several places online that your reports are available—just read the fine print and understand exactly what you’re ordering.
2. Dispute Information that’s Not Accurate: One of the elements of any credit report you order should be instructions on how to dispute items on your credit report. The process usually involves writing a letter explaining the problem in your report and proof that there is an error. You should check your credit report again about 90 days later to make sure the corrections have been made.
3. Get Current On All Outstanding Accounts: Whether you have one credit line or several, each one needs to be up to date on payments at all times. Late payments can sink your credit extremely quickly. If you are hearing from debt collectors for accounts that are past-due, work with them to get current on those accounts. Your credit score can’t begin to improve until you’re current on every account.
4. Reduce Your Credit Utilization: If you have only one credit line with a $10,000 limit and you have used $5000 worth of that credit line, you have a credit utilization of 50%. The ways to improve this number are to either reduce your outstanding balances or increasing available lines of credit. The obvious preference would be to pay down existing debt, but several lenders will not consider an applicant for a new loan unless credit utilization qualifications are met.
5. Increase Positive Credit: Lenders are looking for a pattern of consistency when it comes to making loans. It’s not a bad thing to take on a small loan or open a new credit card in order to enhance your track record as a responsible borrower. Keep your outstanding credit lines manageable and reasonable, but build a history that you can be proud of in the future.
6. Be Patient: The element of improving your credit score that is beyond your control is time. Lenders will judge you based on your past payment habits. If you’ve struggled to make payments on time in the past, start now and commit to making responsible payments every month. Slowly but surely, your credit will improve.
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