Low credit score getting you down? While there’s no magical solution to instantly raise those ever-important three digits, thankfully there are ways to boost your score over time. Here are the five best ways to help your credit score reach excellence.
1. Monitor your credit. You can’t boost your credit score if you don’t know what it is, or why. To make improvements, you need to learn more about your credit history and the accounts that affect it. Credit monitoring services not only provide you with your 3-bureau credit report and scores for free, but they also monitor your credit daily and alert you of any changes. This will educate you about your credit and protect you from identity fraud, which can be detrimental to your score. On top of providing you with your personal credit information, many of these services, like Identity Guard, for example, offer personalized “what-if simulators” that will estimate how your credit scores might improve if you took various actions. They also explain how certain items in your credit history have positively or negatively affected your score.
Services we recommend include Identity Guard, which monitors your credit daily, updates your credit score every three months and comes with a complimentary subscription to Zone Alarm Internet Security Suite, and FreeScoresAndMore.com, which updates your report and scores every month. Read full reviews of NextAdvisor’s top picks for credit report monitoring here.
Want to give it a try? Get your three bureau credit scores for free by signing up for a free trial.
2. Fix any errors on your credit report. There’s a good chance you may find errors in your credit report. In fact, almost 52 million Americans had errors on their credit reports in 2012, according to the FTC. These errors may be simple office mistakes or worse, identity fraud. No matter what the cause is, it could be lowering your credit score.
In order to fix any credit report errors, you need to contact the particular credit bureau in which the error was found. To do this, you must first review all three of your credit reports — Equifax, Experian and Transunion. As discussed above, the easiest way to get your credit reports is to sign up for credit monitoring.
3. Minimize your Credit Utilization Ratio. In order to fix your credit score, it is important to know specific variables that affect it. On top of fixing credit report errors and making timely payments on your loans (which I will discuss below), considering your Credit Utilization Ratio is a key element in boosting your score.
A higher credit utilization ratio affects your credit score negatively because it shows that you are using more of your credit limit. In other words, it is good to have a large amount of credit available, but bad to be using a large fraction of it. To combat a high credit utilization ratio:
- Try not using your loans and/or credit cards to their limit.
- Do not close old credit cards, even if you do not use them. The more credit you have available and not in use, the lower (better) your credit utilization ratio will be
- If you do not have enough available credit to lower your ratio, open a new credit card. Currently, there are a number of cards that offer 0% interest for the first 12 to 18 months, read up on these credit cards here.
If you’re thinking of signing up for a new credit card, make sure to only apply if you think you will be approved. This is because the credit inquiries that result from applying for a credit card may lower your credit score slightly in the short term; however, if you are approved, the improvement in your credit utilization ratio will more than make up for the initial effect of applying for credit.
4. Stay on top of your balances and payments. If you want to stay on top of your credit score, you need to stay on top of your credit accounts. Not making payments on time lowers your credit score significantly and causes you to pay finance charges. Sign onto your accounts online and make sure you know your balances and payment deadlines, in short — get organized. If you are currently in default on a credit account, it is definitely best to at least pay the minimum amount in order to get current. While a late payment history is definitely bad, currently late payments will destroy your score — so pay on time!
If you’re tired of paying off your credit card only to accrue more interest, try transferring your balance to a credit card with 0% interest. This way, you can make payments each month without worrying about interest charges. Check out these top balance transfer credit cards we’ve reviewed at NextAdvisor.com.
5. Get a secured credit card. Having and using credit responsibly will raise your credit score, but if you are unable to get a regular, unsecured credit card because of a limited credit history or other credit issues, then a secured credit card, like the Capital One Secured Mastercard, that actually reports to the three bureaus is a great option for you. When you sign up for a secured card, you are required to provide cash collateral, which becomes your credit limit. You can then use this card as you would a regular credit card — making purchases and paying off your balance at deadline each month. For example, if you put a $300 deposit on the secured card, this is the amount you are allowed to spend.
By using a secured credit card and making payments on it, you are showing that you are responsible with credit. This will reflect well on your credit score, and if you maintain a positive payment history on the card, oftentimes the company may qualify you for an unsecured credit card. Again, you need to make sure that you sign up for a secured credit card that reports to the three credit bureaus. Find the perfect secured credit card here.
Polina Polishchuk is a NextAdvisor.com editor who covers a variety of consumer and business services including credit report monitoring, Internet fax, email marketing and diet programs. She is a UC Berkeley graduate who currently resides in the San Francisco Bay Area. When she’s not tinkering with online services, she enjoys going to concerts, rock climbing and eating sushi.
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