The importance of a good credit score is undeniable, and a good score makes a huge difference when applying for credit. Building your credit score will have a positive impact on the interest rates you are eligible for as well as your access to larger credit lines.
This can save you money in the long run. A better credit score also makes you a more attractive candidate to employers that include credit checks in pre-employment screenings.
For those with not-so-great credit scores, seeing real improvement is possible as long as you follow some basic steps. Find out the best ways to improve your credit score by applying a few simple steps.
1. Check Your Report for Accuracy
One of the best ways to raise your credit score is simple: check your credit report for inaccuracies. Errors range from minor things like an incorrect address to major things like accounts that do not belong to you. However, even small errors have a significant impact on your credit score.
The Federal Trade Commission (FTC) reports that approximately 5 percent of consumers end up paying more in interest and insurance rates due to erroneous items contained in their credit files. Correcting these errors is essential for improving your score.
So, how do errors get on credit reports in the first place? There are various reasons that erroneous information appears on a credit report. In many cases, it involves human error when a creditor enters incorrect information.
In other cases, errors make their way onto credit reports when a consumer applies for credit under an alias or nickname. Regardless of how the errors made it onto your credit report, check your reports regularly to identify and resolve any incorrect information.
Addressing errors starts by requesting a current credit report. This can be done for free by accessing the website www.annualcreditreport.com. Consumers are entitled to a free report every 12 months from each of the major credit reporting agencies: Equifax, TransUnion, and Experian.
When consumers access their reports, all the information they contain will be visible. Usually, disputes are initiated online. Once the dispute is submitted, credit reporting agencies start an investigation and are required to respond to the dispute within 30 days. When a negative item is deleted from the credit report, the consumer’s credit score should increase.
Once errors are corrected or removed, continue to monitor your report for inaccuracies and take action as appropriate. Although consumers can only access their official reports once a year for free, other free and paid services allow year-round monitoring. Taking a proactive approach can help catch errors sooner and protect your credit rating going forward.
2. Pay on Time
Paying your bills on time has a huge impact on your credit score and is the best way to boost your credit score quickly. A consistent on-time payment history dramatically affects your score. Taking more than 30 days to make a payment essentially guarantees a drop in your credit score. The longer you go beyond 30 days, the more points are lost. Missed or extremely late payments can stay on your credit report for up to seven years.
If you know you will be making a payment 30 or more days late, be proactive by contacting the creditor first. Discuss payment arrangements and request that the delinquency reported be deleted. The creditor may or may not delete the reported delinquency but it does not hurt to ask.
If the request is granted, the delinquency will no longer be visible on your report, and your score should improve soon thereafter. Once your payments are current, make an effort to continue paying on time. This way, even delinquencies that could not be removed are balanced out by on-time payments.
3. Limit Credit Inquiries
While you are in the process of repairing your credit, requests for new credit should be limited. Applying for any type of credit will trigger what’s called a hard inquiry. A hard inquiry appears on your credit report and will remain for two years.
If your score is already below average, each time you apply for credit, your score will drop even further. Also, approval for new credit is less likely, so not only will your score drop, you will not even have access to more credit.
A Higher Credit Score Is in Your Future
If you take action addressing the issues on your credit report, you can see a boost in your score in as little as 30 days. The lower your score, the more time it will take to see improvement, so the best approach is to pay bills on time and limit inquiries.
Delinquencies remain on your report for up to seven years, public records remain for 10 years, and inquiries stick around for two years. Understanding the ramifications of late payments can save some of the headache associated with damaged credit.
Being vigilant about improving your credit score will improve your ability to qualify for better interest rates and free up your hard-earned cash. The process of fixing damaged credit does not happen overnight. However, with consistency, even those with low scores can see improvement that will positively impact their financial wellbeing.