5 Tips to Improve Your Credit

Your credit is one of the most valuable things you own. It may not be something tangible, but it can open up opportunities and doors and make life easier for you, or it destroy opportunities and keep you from purchasing needed items or even getting employment.

Many people do not realize that many occupations now check your credit, especially government jobs. They want to see that you are not in financial duress so that you are less likely to steal or engage in dishonest behavior for extra money.

There are many companies who advertise their services to improve your credit score. I have always found this funny because all they can provide is information. It is up to you to actually apply the information and make the changes that will help improve your credit score. Most of this information that they charge you for you can find online. Let me help you with some of the best ways to take charge of your credit and improve your credit score.

1. Request an Increase on Your Credit Limits (Keep Debt Ratios LOW) – This may seem like an odd way to increase your credit score. Why would you want to increase the amount you are able to put on credit? The answer is simple but let me emphasize an important aspect to this rule, DO NOT buy more just because you now can. The principle is that lenders want to see a LOW outstanding debt/credit limit ratio. The lower the ratio is, the better credit score you will be given. For example, if your max credit limit is $1,000 and you have used $900, your current debt ratio is 90%. With a simple phone call you can request a credit increase from you credit card company (as long as you are in good standing and it makes sense) and many times they will increase this amount without any paperwork needed. For our examples sake, if they were willing to increase your credit to $2,500, you would not have a current debt ratio of only 36% which looks much better to the credit bureaus and will most likely increase your credit score. If you feel that you would NOT be able to keep yourself from using the additional credit, then DO NOT increase your credit limits because it will only make things worse.
2. Pay Down Your Credit Cards – Paying off or paying down your revolving accounts has a significant effect on your credit score. This also lowers your current debt ratio and typically raises your credit score. Paying down or paying off installment loans (mortgage, auto, student, etc.) can help your credit score in the same way, but usually not as much as paying down or paying off your revolving accounts.
3. Build Long Term Relationships and Credit History – The bureaus want to see a long credit history. The older the better, as long as it is a good history. In determining your credit score, each uses their own credit scoring formula. They give more weight to actively used accounts so it is good to hold on to your accounts and build an active long term relationship. The longer the relationship, the more information they have to look at and show that you make your payments on time and pay off your accounts over time as scheduled.
4. Dispute Errors – It is not uncommon for someone to have derogatory items pop up on their credit report that are not theirs. People make mistakes and believe it or not, your lender is made up of normal people (for the most part). You may choose to join a credit reporting agency like Experian who monitors your credit on a regular basis and lets you know if anything suspicious pops up. Or you can periodically do it yourself. If you do find an error you will need to contact one of the three credit bureau’s: Experian, Equifax, or Transunion (depending on which one made the mistake). A written explanation and request to remove the account will get the process rolling and hopefully removed.
5. Do Not Be Afraid to Ask Your Lender to Remove Old Derogatory Items – A derogatory item on your credit report is anything that is abnormal. Late payments, charge-off’s, bankruptcies, collections, and liens are some derogatory items that could show up. While Bankruptcies, liens, charge-off’s and collections will be near impossible to remove, many lenders will work with you and be willing to remove a late payment or multiple late payments. This is often referred to as a “goodwill adjustment.” Not all lenders will be willing to do this, but many will reward their customers and remove them especially if you have shown them it will not happen again. Some will do this over the phone while others may require the request to be in writing.

If you take time to monitor, understand, and correct what is showing up on your credit report, you will be able to improve your credit score over time and use your credit as an asset instead of a liability. Take control of your future and open up doors of opportunity!