A good credit score is essential for anyone who wants to do business, get a good job, or buy a home or car in the US. A perfect credit score is 850.
That figure may sound high, which is why many people have less than satisfactory credit scores. So, if you are struggling with your credit rating, you are not alone.
Although many people in the US fall below the recommended 580 range, the average credit score is 714. So many people have and maintain a high credit score, and you can do it too.
Here are five tips on how to improve your credit rating.
1. Regularly check your credit report and score
Start by checking your credit report information at each of the three credit bureaus (TransUnion, Equifax, and Experian) monthly.
Most creditors report to all three of these bureaus, and you can be sure of finding your credit history information there.
Also, apply for a free credit report from annualcreditreport.com at least once every month.
These two things will give you an idea of what your credit score is, then you can manage it correctly.
2. Check your credit report for errors
According to the Federal Trade Commission, at least 5 percent of people have identified errors in their credit reports. Therefore, the report you get from credit bureaus may contain some incorrect information.
These errors make it difficult for them to get favorable loans. So, we recommend you get credit information from the most popular credit bureaus and always check them for errors.
Find ways of fixing or disputing the errors in your credit report to elevate your rating. Some examples of these errors are;
⦁ Incorrect identification data such as phone numbers or addresses.
⦁ Closed accounts, such as credit card accounts, are classified as open in the credit report.
⦁ Fraudulent account information in the report resulting from identity theft.
⦁ Wrong credit limit or current balance data in the report.
⦁ Repeated entries of debts that lower your credit rating unnecessarily.
Once you identify these problems in your credit report, file a request with the credit bureau to dispute them. If they are real the bureau will correct them and increase your credit score.
3. Fix your credit
Although there are credit repair companies that can fix your credit report, they charge expensive rates.
You can fix your credit report by checking for errors and disputing them yourself.
If you find any errors, you may contact the lender responsible for them and ask them to make corrections or file a dispute with the credit reporting agency if they refuse. Investigating such an error will take up to 30 days, after which your score will be updated.
Ask for assistance fixing your credit from organizations like the National Foundation for Credit Counselling. These organizations have nonprofit credit counselors who will guide you through this process and help you to manage your debt.
A debt management strategy will enable you to make monthly payments on time, and negotiate lower interest rates on loans or credit card debt.
4. Monitor your credit utilization ratio (CUR)
Paying some of your outstanding debts can reduce your credit utilization ratio by giving you a better payment history.
Lenders use your credit utilization ratio to gauge how you manage your finances. This ratio is measured by comparing your credit card balance with your credit card limit.
The recommended credit utilization ratio (CUR) is less than 30 percent and greater than 0 percent.
Do you have a high credit utilization ratio, here's how to reduce it;
⦁ If your credit score is in reasonably good shape, use a balance transfer credit card or personal loan to consolidate your credit card debt. This will drop your credit utilization ratio, further elevating your credit score.
⦁ Increase your available credit by getting a new credit card account or request a credit limit increase on a current credit card. This will trigger a hard inquiry and temporarily reduce your credit score points but improve it in the long run.
⦁ Pay your credit balances and keep your accounts open to maintain your current credit score and credit utilization ratio (CUR). Reputable credit scoring models factor in the age of your oldest account and usually reward people with long credit histories.
It's not easy to pay off/reduce your credit balances, but you can do it by following the snowball or debt avalanche method. This will require you to pay off your high-interest cards or smallest debt balances first, whichever works for you.
You may also repay your loan debt to improve your credit score. Although it will lower your credit score slightly in the short term, you will have less loan debt to worry about, which is always a good thing.
5. Keep tabs on your credit score
It takes a few weeks for credit bureaus to update your credit information and some time for it to reflect in your credit score. Therefore, fixing credit and maintaining a high score is a long-term process.
Any negative financial information, such as missed/ late loan payments or bankruptcy can remain on your credit report for 7 - 10 years. The bigger your debt, the worse your score. So you must be careful with your finances if you desire a high credit score.
Check your score at least once a month to see how your spending habits are affecting it. This way you can adapt habits that keep your score from getting lower. For example, consistently paying your loan on time and keeping your credit card accounts active.
Last word
That's how to fix your credit in 5 easy steps. Fixing your credit yourself is the best way to increase your credit rating. Although it seems easier to hire a credit repair service, it may cost you more than you can afford to pay.
You must always practice good debt payment habits and avoid unnecessary credit to maintain a good credit rating. Also, regularly monitor your credit using a free credit monitoring tool from a bureau such as Experian.
These tools send real-time alerts on account performance and highlight any suspicious activity, such as identity theft that could lower your score. It's the best way to keep abreast of your credit information to avoid lowering your rating unknowingly.
By : Lilian Aciro Kariuki
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