If you’re a Millennial or a Generation Xer, chances are we forgot to take care of our credit. For some, we thought money grew on trees, or we just didn’t have the funds to pay back what we borrowed, i.e, credit cards, school loans, personal loans, car loans, etc. This means that we are now running a sprint towards fixing our credit scores for the next big purchase. According to Vantage Scores, that means that we’re part of the 68 million people who have a credit score of 601 or less. YIKES! Let’s talk about five ways to improve your credit score without going broke. This way, when you’re looking to get financing, you’ll have more options.
1. Make Sure Your Credit Report Is Accurate
A 2012 study from the Federal Trade Commission found that 1 in 5 consumers had an error on at least one of their credit reports, and a follow-up study in 2015 found that those who reported an unresolved error on one of their reports believe that at least one piece of disputed information is still inaccurate. Since your credit scores are based on the data in your credit reports, it’s incredibly important to make sure all of that information is accurate. If you have a mistake on your credit report, your credit score will reflect that mistake. Find these errors and dispute them.
What to look for and questions to ask while researching your credit report:
- Is all of your personal information accurate? (That can include your Social Security number, birth date, full name and address.)
- Are all of your credit accounts being reported?
- Are there any late or missed payments listed that you remember making on time?
- Don’t recognize some of the accounts or applications your report?
- Do items from decades ago still appearing on your report?
2. Determine What Needs Improvement for Your Credit Score to Rise
If there aren’t any errors on your credit report, then you need to look at your history.
Here are the major credit scoring factors and how each one can impact your credit score:
- Payment History: If you have a history of making late payments, creditors see you as a bigger risk.
- Amount of Debt: Debt contributes 30% to a FICO Score’s calculation and can be easier to clean up than payment history, according to FICO’s website. (It weighs heavily on other credit scoring models, too.) That’s because if you currently have five maxed out credit cards, creditors worry whether you’ll be able to take on more credit and whether they’ll get paid back first or if your other creditors will.
- Age of Accounts: If you’re newer to credit and borrowing, there isn’t a whole lot of data to go on. You may need time to see your credit score improve.
- Account Mix: Lenders want to make sure you can handle different types of credit like credit cards and auto loans, for example. If the only credit you have is in the form of credit cards, you may be keeping your score from rising.
- History of Credit Applications: If you applied for a dozen new credit cards this month, creditors wonder why. They may be worried you’re overextended financially.
3. Fix Your Late Payments
If your credit report information is accurate, but you know what you did wrong and want to work to improve it. For starters fix your late payments.
Closing an account won’t make a difference — honestly. Your best bet here is to get yourself back on the right track. You can do this by:
- Setting up payment alerts with all your credit cards, and loans to help stay organized
- Move credit card payment due dates so that they’re always paid when you are paid.
- Ask the lender(s) to forgive one or two of the late payments if you’ve always paid on time before.
4. Pay Off Your Debts
Seriously, this one is plain as day. Most debtors are willing to settle for a fraction of the original bill. Pay off your debt instead of repeatedly transferring it to new accounts. Contact the debt collector listed on your credit report to see if they’d be willing to stop reporting the debt to the credit bureaus in exchange for full payment. This technically violates some of the collectors’ agreements with the credit bureaus, so it may be a non-starter, but it never hurts to try. Just be sure to get that promise in writing before you make a payment. Also, if it’s a debt that you don’t recognize or seems inaccurate, dispute it with all three credit bureaus. You may get it removed and see your credit score improve quickly.
5. Limit Credit Applications
This one is almost a no-brainer. I know we all want credit and the 10% discount for signing up for a store credit card may seem worth it in the moment, but your credit score will take a hit for applying, whether you get approved or not. A hard inquiry will impact your credit score for a full year, though your score will start improving almost immediately after you apply. The hit is small (normally around 3 to 5 points) but if you’re on the edge of two credit score tiers or applying for lots of credit offers in a short time span, you can do a lot of damage.
That’s all there is to it, really. If you want to fix your credit report, you need to be diligent about it. Be careful how much you spend, pay it back on time, check for errors, and fix or dispute the errors you do find. Once you see your credit score going up, and your report is up to par, you’ll be able to enjoy the perks of lower interest rates and APRs.