How to Improve Your Credit Score

Credit scores impact many of your purchases. Your ability to get a credit card, buy a car, and yes, purchase a home, may hinge on that three-digit score. In addition, people with high credit scores get the best interest rates, which can add up to tens of thousands of dollars in savings over a lifetime.

Unfortunately, past mistakes with overspending, too much debt, or paying bills late may have caused your scores to be lower than average. Never fear, with a little time and effort, you can get back on track and improve your credit scores. Here’s everything you need to know about improving your credit score.

Start by Checking Your Credit

Pulling your credit report is the first step toward improving your score. Go to www.annualcreditreport.com, which is a website sponsored by the three credit bureaus. Enter your personal information, order your report, and print it out. Look at every line of credit to make sure the list is accurate. See if there are any late payments, collections, or other negative information.

Dispute Any Errors

Items on your credit report are added by name, date of birth, and address, not just your social security number. This system is fraught with mistakes. It’s estimated about one in four credit reports contain errors. If you have a common name, you could be especially vulnerable to accounts that aren’t yours showing up on your credit report. In addition, clerical errors could have caused a late payment to show up on your credit when you weren’t late.

If you see an error, dispute it with the bureaus immediately. It may take a few weeks, but they will remove mistakes from your report. We’ve seen scores increase 80 points just by removing the errors!

Get Current on Your Bills

The next step is paying your debts. Since your payment history is the single biggest driver of your credit score, late payments are bad news. If you’re late on any debts, cut your expenses to free up funds to get them current and commit to keeping them paid on time. Luckily, credit scores are primarily driven by your actions within the last six months. If you get current and stay current, your scores will start improving as those late payments get old.

Pay Down Revolving Debt

Large balances that are close to the spending limit on your credit cards make you look risky, which decreases your credit score. If your credit utilization ratio is over 30 percent, make a plan to chip away at those big balances. You can calculate your credit utilization ratio by dividing your total credit card balances by your total credit limit for all your credit cards. Money-saving tips include: stop eating out, limit your shopping, and cut your cable to free up money to pay on your debts.

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Control Your Spending

Spending more than you make is always going to land you in credit card debt and put you at risk for not being able to make your payments on time. Both of these scenarios can end up tanking your credit score. Set a realistic budget with your debt obligations and stick to it. This is the most important action you can take to keep your credit score high for the long term.

Keep Credit Cards Active

Yes, you need to keep balances on credit cards low, but you DO get points on your credit score if you manage revolving debt wisely. You also gain points if you’ve had a lengthy credit history. So don’t close your old credit cards! Use them every few months and pay them off when you get the bill. That way your positive payment history is factored into your credit score, helping it go up over time.

NEVER Co-Sign for Anyone

Protect your good credit once you build it up. No matter how much you love them or how nicely they ask, just say no to anyone who wants you to co-sign for a loan. If you co-sign, you’re just as responsible for the debt as the other person. If they don’t pay on time, it goes on your credit report. Co-signing has caused people to lose over 100 points on their credit scores! Just say no.

It may be disheartening to see that past credit mistakes have caused you to have a low credit score. A little work and dedication is all it takes to get your finances together and start rebuilding your credit. Follow these tips to turn it around, and you’ll be rocking a top-tier credit score in a few months.

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