Knowing and improving your credit score is the key to saving money on loans, getting a good job, and getting approved for credit. Most people don’t have a great credit score. In fact, the average score is 675; lower than what most financial institutions consider a good score. Even though you’ll probably be approved for a loan, a low credit score can increase your interest and monthly payment amount.
If you’ve accumulated a lot of debt, your credit score may need some work. Here are a few ways to quickly boost your score:
Strategies to Improve Your Credit
Know your current score
You need to know and understand your current financial situation before you can start improving it. Outstanding loans, collections, and late payments can be affecting your score. Get a copy of your credit report so you know what you’re dealing with; you can get a free report annually from FreeCreditReport.com but if you want your overall score as well, you’ll have to pay a small fee. The credit reporting agencies will also provide one free report a year, usually including your score, but you will need to make individual requests. You may be surprised to find that old accounts you’ve already paid off are affecting your score. If so, you can contact the credit agency and ask to have them removed. The credit agency will contact the creditor to verify the debt. If the creditor does not respond within 30 days, the credit agency will remove it from your report. Most creditors don’t spend time dealing with old accounts that are paid off, so they usually won’t respond.
Look out for identity theft
As your credit score starts to improve, you become more likable to identity thieves. Check your report every year to make sure you don’t have any unrecognized accounts. If there’s something you’re not sure of, question it with the credit agency.
Start paying off debt
Reducing your debt is one of the best ways to improve your score and there are two ways to get it done. You can pay off your smallest debts first, allowing you to eliminate some debt quickly. Or you can pay off your loans and credit accounts with the highest interest rate first, saving you money over the long-term.
If you have more than one high-interest credit cards and are close to your credit limit, the fastest way to reduce your debt ratio is to consolidate to a lower interest loan. Just don’t close the accounts you pay; having only new debt on your record will also hurt your score. Also, closing accounts will reduce your overall line of credit, which can also hurt your score. Keep your accounts open and your balance at zero or at an amount you can easily pay off monthly.
Get more credit
This may seem counterproductive, but if all your debt is old (even if it’s paid off) and you don’t have any new debt, it will hurt your score. The amount of credit you use accounts for 30% of your score. This includes your recent payment history, the age of your debt, and how many inquiries have been made (companies checking your score). Opening a new account and using it for small purchases will improve your credit usage, improving your score. If you’re unable to qualify for a new account, get a secured card. You’ll need to pay a deposit and your limit will be equal to your deposit, but it will help to improve your score.
Having a bad credit score doesn’t have to be long-term. Using these strategies, you can start improving your score in as little as 6 months.