When you're writing out your New Year's resolutions this year, why not add "improve my credit score" to your list? Boosting your credit score can have positive effects - including getting you better rates on future credit, helping you buy a home or car, and even making you a more competitive job candidate.
While erasing major credit blunders - such as a foreclosure or collections account - can take years, you can still take some relatively simple steps to boost your credit score. Some of these steps will have a larger effect than others, but by following a combination of these steps in 2014, you could increase your credit score by 100 points or more.
Start by pulling a recent copy of your credit report, and then make plans to complete these four steps in the new year:
1. Pay off past due accounts.
The bulk of your credit score - about 35 percent - comes from your payment history. The more often you make payments on time, the better your score will be.
So start by checking your credit score for past due accounts. If you have several past due accounts, it's time to triage.
Accounts that are 90 days late will have a bigger negative impact on your score than those that are 60 or 30 days late. So pay off the most past-due accounts first, and gradually catch up on all your payments.
2. Ask for good faith adjustments.
When you look at your credit report you may see just one or two late payments. Maybe these payments were late because of an oversight or because of a one-time financial problem that has since been resolved.
In this situation, you might get an automatic boost to your credit score by asking for a "good faith adjustment." Call or write to the creditor, and ask for a courtesy adjustment. If you've been a good customer and only have one or two late payments on your account many creditors will remove the late payment from your credit report.
3. Deal with collection accounts, charge-offs and liens.
Accounts that have been charged off or sent to collections have a negative impact on your credit score, and you need to be careful how you deal with them.
Paying charge-offs or liens that are older than 24 months won't boost your credit score. Address charge-off accounts that are less than 24 months old first, then pay the others when you have the funds to do so.
Pay off collections accounts as well, but be aware that paying off collections accounts can, at first, cause your credit score to drop. That's because when you make a payment, the last activity on the account becomes more recent, making it weigh more negatively in your credit file.
The best way to avoid this problem is to ask the collector to erase the account from your credit file when you pay it off. Many collections agencies will delete reporting when you've paid off the account. If the agency agrees to this, be sure to ask for a letter stating that the agency agreed to delete the account upon receipt of your payment.
4. Improve your debt-to-credit ratio.
Another factor used to calculate your credit score is amounts owed. Amounts owed isn't about the actual dollar amount you owe but your debt-to-credit ratio - how much money you owe versus how much credit you have available.
There are several ways to improve your debt-to-credit ratio, which is probably the fastest way to improve your credit score. Here are a few to try:
--Ask for a credit increase. This improves your debt-to-credit ratio without paying an extra dime on your outstanding debt.
--Move credit card balances. Keep your debt at or below 30 percent of your credit limit on each credit card. One way to do this is to simply move balances between cards, even if it means opening a new card. (Plus, you might be able to take advantage of balance transfer promotions.)
--Pay down revolving debt first. Your credit score will reward you somewhat for paying down installment loans, but you'll get the most bang for your buck when you pay down revolving debt like credit cards and lines of credit.
--Transfer debt to a personal installment loan. Consolidate all your credit card debt under a personal installment loan.
Abby Hayes is a freelance blogger and journalist who writes for personal finance blog The Dough Roller and contributes to Dough Roller's weekly newsletter.
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