If you want to improve your credit score, you need to come up with a strategy to tackle this problem. This is not something that you can easily do. The changes you have to make should be implemented consistently. Improving your credit is not something that you can do overnight. It will take time and you have to be consistent with your strategy.
Some people have admitted to being confused with their credit score. In case you are confused, you need to plan your strategy carefully by understanding what you need to learn about your credit report. Let us start by identifying what a good and bad credit score is.
According to the SimpleDollar.com, a bad credit is a score between 300 to 650. Next to that is a fair credit with 651 to 700. A good credit standing is given to those who have a 701 to 759 credit rating. If you have 760 and above, that is considered an excellent credit score.
In case your current credit score is not in the good or excellent standing, then you know that you need to do something about it. You might miss out on a lot of financial opportunities and benefits because you failed to act when you needed to improve your credit score.
3 steps to rebuild your credit rating
According to the data provided by ValuePenguin.com, the average credit score in 2015 is 695. Based on what we know from the Simple Dollar, that is only a fair credit rating. If you want to enjoy more financial opportunities and better interest rates, you need to improve your current credit standing. Fortunately, it will only take 3 simple steps to make this happen.
Step 1: Take a look at your credit situation.
Start by understanding your current credit position. You cannot make plans to improve your credit score if you have no idea where you are right now. You need to pull out at least one credit report from any of the three major credit bureaus. Check the details to ensure that everything is in order. See if your understanding of your credit situation is the same as what was reported.
You can get a copy from the website of the Annual Credit Report. According to the federal government, you can get one free credit report from each of the major credit bureaus. That is three free reports on a yearly basis. You do not have to get from all three. Choose one and get your free copy. To check your current credit score, you can choose among the many credit score calculators on the Internet. Try 2-3 calculators to see the credit score range that you have. Once you have these details, you can proceed to the next step.
Step 2: Find out why your credit score tanked.
The second step involves scrutinizing the details of your credit report. There are various ways that your credit score can be hurt by the details on your report. You need to identify what these are. There are two reasons for this. The first is to verify if these entries are correct. Sometimes, the creditor or lender provides the wrong information to the credit bureau. There are times when the bureau themselves record the wrong information. The other reason to check your credit report is to understand the mistakes that you had been doing to pull your credit score down. Once you have identified the problem, it should be easy to come up with a plan to help you improve your credit score.
Step 3: Create a plan based on the root problem.
The final step to help you boost your credit score is to create a specific plan based on the problem. If you know what you need to fix, it should be easy to come up with a strategy to work on it. For instance, if your score is low because of an error made by either the creditor or the credit bureau, you can file a dispute to have it corrected. In case the low score was caused by your own credit behavior, then you need to identify the habits that you need to change and those that you need to implement. If you can improve your credit score by paying down your debts, then choose a debt solution that you can use to make it happen.
Here are more tips on how you can improve your credit score.
3 ways your credit can go down without you knowing it
If you are not yet aware, there are instances wherein your credit score goes down because of outside factors. You may be making the right choices all the time but because of the actions of other people, it affected your credit history.
Here are the three instances wherein your credit can go down even without you knowing about it.
- Identity theft. According to the data from the Insurance Information Institute, the amount involved in identity theft amounted to $15 billion in 2015. This was distributed to 13.1 million consumers. The data mentioned that an estimate of $112 billion was stolen in the past 6 years. Make sure you protect your financial and personal data – especially when you are transacting online. Verify the security and reliability of the websites you will visit to ensure that your data will not be used without your permission.
- Mistaken identity. There are other cases wherein a wrong letter in an application was made and that left you with a credit account that you did not open. This is oftentimes an honest mistake on the part of the creditor or lender – or the original borrower. They may have written the wrong information or encoded the wrong letter. In case you see an entry in your credit report that you do not recognize, call the creditor or lender. You can also call the credit bureau. You need to check who filed for the credit account and you need to do it as soon as possible. The earlier you address this mistake, the more likely you can solve it.
- Entry errors. Finally, we mentioned earlier that it is possible for the creditor or credit bureau to make a wrong entry in your credit report. For instance, you may have borrowed $10,000 but the creditor entered $100,000 instead. That is just one number that will cost you a lot of money. It is also possible that some of your payments were not recorded. This can bring your credit score down. You need to prove that the payments were made in order to correct the wrong entries in your credit report.
To improve your credit score, it is important that you show the authorities the documents that will prove your innocence. This is why organizing your financial files should be treated seriously. Financial management and organization can be a big help when you are trying to boost your credit score.
Common questions about your credit score
Question: Are all credit scores the same?
Answer: Not all credit scores are the same because there are different formulas being used (eg. Fico Score, VantageScore, etc) and the three major credit bureaus sometimes have different records. The difference is usually very small but it will result in different scores. Sometimes, creditors will only submit your records to one credit bureau and the other two will copy it. This causes a delay in the records of the other two.
Question: How can a credit score affect your mortgage application?
Answer: When you have a high credit score, that indicates that you are a good borrower. You can pay your dues on time and the lender does not have to worry about default or foreclosing on your property. This will encourage them to give you a low-interest rate on your loan.
Question: How can credit cards affect your credit score?
Answer: Credit cards are easily abused by consumers. When you this is why a lot of people end up with so much credit card debt. If you have accumulated a high balance, that can affect your credit utilization and pull your credit score down. In case you find it hard to pay this off, that can also affect your payment behavior. This will also result in a lower credit rating.
Question: Where can you get your credit score?
Answer: You can get your score through any of the three major credit bureaus (Experian, TransUnion, Equifax). You can download a copy of your report – which you are entitled to get for free once a year. When you have your report, you can use any of the credit score calculators online. Just make sure you choose a reputable site.
Question: Why is my credit score different than last month?
Answer: When you make payments or you open new accounts, this will be reflected in your credit report. Any credit transaction will be encoded in your records and that can affect your credit score. Even credit inactivity will affect your score so do not expect that it will remain the same forever. It takes constant work to improve your credit score and maintain it.
