I‘ve been lucky to have a solid credit score for quite some time now (around 750 last time I checked). I know that once I graduated college, I was on the verge of letting my credit score slip really fast. Luckily, I prevented a financial meltdown by taking control of my radical spending and my credit score has improved ever since. I know, however, that many are not in that same boat and struggle to get the credit score they want.
If you want to fix your credit score, you need to know what your current score is. Most creditors rely on the three-digit FICO credit score, which range between 300 and 850, when determining your level of risk as a borrower. The higher your score, the lower the risk is for the lender and the better your interest rate will be.
On the other hand, low credit scores result in getting denied for credit, or getting credit at extremely high interest rates. Contact a credit reporting agency to obtain your FICO score to see where you stand. You can get a free credit report, but to get the actual credit score you will have to pay (usually around $25). There are ways to get your credit score free online. Just read the fine print.
Once you have your credit report and you get your free credit score in hand, you can take the following steps to fix your credit score fast:
1. Get Serious About Paying Off Debt
If you have credit cards, you’ll want to focus your debt repayments here first. Paying credit card bills on time, and paying down the balances or paying them off completely will improve your score faster and more than paying off installment loans (car, student, mortgage, etc).
2. How Low Can Your Debt Go?
Focus on getting your overall debt below 30% of your available credit limit on each credit card and revolving account you have.
This increases the amount of your “available credit” and will improve your credit score as you will be seen as less of a risk. Look at your credit card balances and send higher payments to the cards with balances closest to the credit limit first – to work toward the goal of decreasing your overall debt to less than 30% of available credit limits. Once you’ve obtained that goal, you can focus on paying back high interest debts first.
3. Use Credit ONLY When You Have To
Try not to use your credit cards, even if you’re paying your bills in full each month. Each month, the balance from your last statement is reported to the credit bureaus, and whether you made your payment on time. Using a card that already has a balance isn’t going to improve your score, so save yourself the extra interest and stop using the cards while you’re working to improve your credit score.
Definitely do not use credit cards from issuers who don’t report your credit limit. American Express tends not to submit a credit limit, which means the credit bureau assumes your highest balance is your credit limit. This will make it look like you’ve maxed out your credit card, which affects your score negatively.
4. Verification of Your Credit Limits
Verify that the credit limits shown on your credit report match your actual credit limit for each credit card account. If the report is showing a lower limit than you really have, it can cause artificially lower credit scores because it will appear you’re using more of your available credit than you really are. If you find an error, simply ask the credit-card issuer to update the information with the credit bureaus.
5. Fix Your Credit Report and Make Sure It’s Correct
Have your credit report corrected if there are errors with any of the following situations, as they negatively affect your credit score:
- Late payments, collections, charge-offs that you don’t think are yours
- Credit limits reported lower than they really are
- Accounts which are listed as anything other than “paid as agreed’ or “current”, including “settled”, “paid charge-off”, “paid derogatory”.
- Accounts listed as unpaid that were included in a previous bankruptcy.
- Any negative item older than 7 years that is still appearing on your report (it should automatically come off the report after 7 years – 10 if you filed bankruptcy)