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Want to qualify for the best rates, terms, and bonuses which credit card issuers have to offer? Your credit is going to play an important role in the process.
Earning great credit is incredibly valuable. It can both open doors and save you a lot of money. If your credit reports and scores are currently in less-than-stellar condition, the good news is that you can absolutely take steps to begin changing that reality.
You might not be able to move from bad credit to great credit overnight, but each time the condition of your credit improves you are putting yourself in a better position.
Here are five credit-boosting tips to help you get started.
Review Your Reports
Credit reporting errors are more common than you might believe. In fact, a few years ago the Federal Trade Commission conducted a study which found more than 40 million mistakes on U.S. consumer credit reports. Due to the frequency of credit reporting mistakes, it is important to frequently review all three of your credit reports for accuracy.
Pro Tip: You can claim a free copy of all three of your credit reports once every 12 months from AnnualCreditReport.com
If you discover inaccurate information on your credit reports, take action. The Fair Credit Reporting Act gives you the right to dispute mistakes with the credit reporting agencies—Equifax, TransUnion, and Experian.
Whatever you do, don’t ignore the problem. Inaccurate credit reporting often harms credit scores. This can be true even if you believe an error to be insignificant (like an incorrect date, for example).
Eliminate Late Payments
How you pay your bills (and how you have managed this task in the past) is among the most important information considered whenever your credit scores are calculated. FICO bases over 1/3 of your credit scores—35% to be exact—upon payment history factors found in your credit reports.
If you want to maximize your credit scores, as you should, then you must eliminate the late payment habit once and for all. Even a single, isolated 30-day late payment could damage your scores to some degree for up to seven long years. More serious and more frequent late payments could harm your scores significantly.
Pro Tip: Consider setting up automatic payments with your creditors. This can provide an added layer of protection to help prevent late payments caused by accidental forgetfulness.
Pay Down Credit Card Debt
Payment history matters when your credit scores are calculated, but so does your debt. Credit card debt is especially influential over your scores. In fact, the “Amounts Owed” category of your credit reports accounts for a whopping 30% of your FICO credit scores.
Scoring models are primarily concerned with the debt to limit ratios on your credit card accounts or, in other words, how much of your available credit limits you are utilizing according to your credit reports. This is also known as your revolving utilization ratio.
When the debt to limit ratios rise on your credit card accounts, your scores may suffer. For this reason, paying down your credit card balances is often one of the most actionable ways to improve your credit scores.
Pro Tip: Pay your credit card balance in full each month a few days prior to the statement closing date on your account. This will ensure that a $0 balance (and a 0% debt to limit ratio) appears on your credit reports for the following bill cycle.
Understand the Importance of Age
Credit scoring models are designed to reward you when your credit reports show a long history of good credit management habits. This means that as the accounts on your credit reports age, your credit scores may slowly increase over time.
FICO and other credit scoring models pay attention to both the average age of accounts appearing on your credit reports and the age of your oldest account—the older, the better. You should be cautious not to open new accounts too frequently as this could hurt your credit scores. (Strategic and periodic new accounts are fine.)
Additionally, if your spouse or loved one has an aged, well-managed credit card account or two, consider asking your loved one to add you as an authorized user. Once you’re added on and the existing account shows up on your credit reports, your scores might just receive a boost (assuming, of course, that the account is older and has a low balance with impeccable payment history).
Pro Tip: You should never pay to be added as an authorized user onto a stranger’s credit card account. This is known as “tradeline renting.” If you pay to rent a stranger’s tradeline information and apply for new financing afterward, you might be guilty of loan fraud.
Apply for New Credit with Caution
Just like opening too many new accounts could harm your credit scores, the act of applying for too much new credit in a short period of time could be harmful as well. When you apply for a new loan or credit card the lender will review your credit report (or reports) as part of the application. That credit report access, known as a hard inquiry, is recorded on your reports and could impact your scores negatively.
Thankfully, inquiries only impact 10% of your FICO scores (and, honestly, just a portion of that 10% category if you want to get picky). You don’t need to avoid applying for new credit when you want or need it, but you should be strategic about when and how often you allow lenders to access your reports.
Pro Tip: Hard inquiries will remain on your credit reports for 24 months; however, they are only potentially considered in the calculation of your credit scores for 12 months.
The Bald Thoughts
Remember, be realistic when it comes to your credit improvement expectations. Fixing your credit is a lot like losing weight. It takes time, consistent work, and patience.
You shouldn’t be discouraged if your credit scores are not moving as quickly as you had hoped. Stay the course. The benefits of earning better credit are totally worth the effort.
A big thank you to Michelle Black for writing this excellent article about boosting your credit score. If you’d like to read more of her writing, visit her site at HerCreditMatters.com. You can also connect with Michelle on Twitter and Instagram.
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