Improving Your Credit Score

Your credit score is one of the most important measures of your financial health. It is based on many factors, including your payment history, amounts owed, length of credit history and more. Although there is not a quick fix for a low credit score, there are simple things you can do to bring it up. Here are some tips to achieve a better score.

The three leading credit reporting agencies are Experian, TransUnion and Equifax. They collect credit information from companies where you have open accounts, including bank accounts, credit cards, mortgage, etc. Carefully review your credit report from all three credit reporting agencies for any incorrect information. Dispute inaccurate or missing information by contacting the credit reporting agency and your lender.

One of the biggest contributing factors of your FICO credit score is based on payment history. It accounts for 35% of your score.  Make sure you pay bills on time.  If you do have past due bills or debt, deal with it immediately.  Paying off a collection account will stay on your report for seven years. The impact on your overall score declines over time, but that negative mark still matters.

After payment history, the next most significant factor in your credit score is your credit utilization. Your credit utilization, or the balance of your debt to available credit, contributes 30% to a FICO score. It is commonly recommended to keep your credit utilization below 30%. Paying down revolving accounting balances and/or reducing the amount of debt you owe improves your credit utilization percentages.  Additionally, you can request an increase in your available credit line.

If you do not have a credit card, get one. Irresponsible use of a credit card can be a negative for your credit score and your finances. But used wisely, a credit card can be one of the fastest ways to improve your credit. By signing up for a credit card and paying on time each month, you build a positive payment history. Then, by keeping spending on the card low, you create a low utilization ratio. Credit cards also positively impact your credit mix and new account aspects of your credit score. That being said, too many credit inquiries or new credit accounts in a short period of time will hurt your credit score.

Don’t expect changes overnight.  Credit reporting agencies need to see consistent, responsible behavior and trends before significantly changing scores.  With a little bit of management and time, you can improve your score to be higher and more positive.