Have bad credit and want to improve it? There are two things you should know:
- You are not alone. According to recent statistics, there are over 30 million Americans who have difficulty obtaining loans and credit cards because of challenges with their debt.
- There are some simple ways to improve your credit score. Below I’m going to provide six proven tips to help you get started.
Remember, the better your credit, the lower your interest rate on car loans and credit cards. Good credit scores will also make home ownership much easier.
So what can you do to improve your credit score? Here are 5 tips:
- Get rid of credit card debt – while paying off loans, such as your mortgage, car loan or student loan, can improve your scores it will not improve your scores as much as getting rid of revolving accounts such as credit cards.
- Cut back on credit card use – Making big charges can damage your scores whether you pay off your balances each month or not. As a rule of thumb, try to keep your monthly charges to 30% or less of your credit card’s limit.
- Make sure the credit limits being reported on your credit report are accurate – if your lender is showing a credit limit that is lower than your actual amount your credit score can be penalized. Most credit card issuers will quickly update this information if you make them aware of the error.
- Continue to use older credit cards – quite simply, the older your credit history, the better. If you continue to periodically use the credit cards that you’ve had the longest your credit score will benefit (provided you pay the balance off in full each month, of course).
- Closely study your credit report for errors – when it comes to raising your credit scores, some errors are more important to get fixed than others. Here’s what you should look out for and get corrected if you discover mistakes have been made:
- Late payments
- Credit limits reported as lower than they actually are (See #3 above)
- Accounts listed as anything other than “current” or “paid as agreed” (such as “paid derogatory” and “paid charge-off”) if you paid in-full and on-time.
- Accounts included in a bankruptcy that are still listed as unpaid.
- Negative items older than seven years (10 in the case of bankruptcy) that should have automatically been removed from your credit report.
Follow the five tips above and your credit score should steadily improve.
Bonus Tip – Don’t ask a creditor to lower your credit limits!
While your heart might be in the right place – i.e. reducing your limit will keep you from charging so much, the truth is lowering your credit limit will reduce the all-important gap between your balances and your available credit, which in turn will hurt your credit score.
It’s better to leave your limits where they are and try to limit your spending another way.
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