The question here is what could you do or undo if you have a less than stellar credit score? The good news is that you could raise your score fairly quickly and reasonably and without financial risk. And it won’t take you years. The following tips are things that you could do to increase your score in around 30 to 60 days.
As Mark Twain once put it the important thing is to get started. And the secret to getting started is to break up big, complex, tasks into small, manageable ones and then start on the first one. So having said that, what’s the first small one that could get you started?
Get your credit reports and check for errors
A study released two years ago by the Federal Trade Commission reported that roughly 20% of us have errors in our credit reports. You need to get your reports from the three credit reporting bureaus – Experian, TransUnion and Equifax – and then go over them with a fine-tooth comb. Are there purchases you don’t remember having made? Are there companies listed you don’t believe you ever did business with? How about that account that was written off? Was that even your account? If you find errors like this you need to dispute them. The way you do this is by writing a letter to the appropriate credit bureau with whatever documentation you have to back up your claim. The credit bureau will contact the institution(s) that provided the information and ask it to verify it. In the event the company can’t verify it or doesn’t respond within 30 days, the credit bureau must remove the item from your credit report. If you find several errors and get them removed this should improve your credit score significantly.
Write the credit bureau
If there is a company that incorrectly reported you had made a late payment you need to contact it and ask that it remove the information. In fact, if the late payment was incorrectly reported or you simply forgot to pay a bill when you’re usually 100% on time, you should be able to negotiate to get the company to remove the late payment from your credit reports.
Work on your debt-to-credit ratio
A full 30% of your credit score is based on your credit utilization or debt-to-credit ratio. This is calculated by dividing the amount of credit you have available into the amount you’ve used. As an example of this, suppose you have $10,000 in available credit and have used only $2000 of it. This would yield a debt-to-credit ratio of 20%, which would be quite good. Conversely if you had used up $5000 of that $10,000 your debt-to-credit ratio would be 50%, which would definitely be having a negative effect on your credit score. You need to sit down and calculate your debt to-credit ratio. If it’s about 35% or more there are two ways to quickly improve it. The first is to pay off some of your debts and the second is to get more credit. If paying off some of your debts isn’t doable you might be able to get an increase in the limit on one of your credit cards or open a new one to improve your credit-to-debt ratio. This can be a bit risky if you start using that card so the best thing to do is put it away in a drawer somewhere and forget you have it.
Whenever you apply for any type of credit, whether it’s a credit card, an auto loan or mortgage you’ll face a credit inquiry. Too many of these inquiries in a short amount of time and the credit bureaus may ding your credit score. Any time you apply for a new card or an increase in the limit on one of your existing cards this will result in what’s called a “credit pull” and may decrease your credit score. However, it is good to have multiple forms of credit on your credit reports, such as a credit card, an auto loan and a revolving line of credit, as this shows potential lenders you can successfully handle different types of credit simultaneously. Plus, this accounts for 10% of your credit score.
Settle any delinquencies and then get proactive
Did you know that the bank might report your payment as delinquent even if it’s fewer than 30 days late? Of course, this varies from credit card issuer to credit card issuer and will also depend on your borrowing behavior. Some issuers will hold off on reporting an account as delinquent until it’s 60 days late. In this case, being 30 days late will have no effect on your credit score since your credit report will show no late payment. If you do find delinquencies in your credit reports it’s important to get them settled. This means contacting the creditor or creditors to discuss what you would need to do to eliminate them.
Once you’ve settled any delinquencies get proactive by setting up automatic payments. You may be able to do this through your bank. If not, almost all lenders have ways for you to pay them automatically. This avoids the possibility of accidentally missing payments and removes the brain damage of having to remember to make multiple payments on different days of the month.
Build lifelong habits
Probably the biggest secret to getting and keeping a good credit score is to treat it as a sort of game. It’s a serious game and will require both tactics and strategies. But if you approach the task of managing your credit seriously and begin staying on top of your debts, your credit limits, your balances and your due dates, you will eventually develop habits that will make it easy for you to successfully manage your finances for the rest of your life.