Ultimate Guide to Improve Your Credit Score

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There are many factors used to calculate your credit score. If you understand these factors, you can make smart moves to improve your credit score quickly.

These are the factors used and their impact on your credit score:

  • 35% – Payment History
  • 30% – Amount of Credit Used
  • 15% – Length of Credit History
  • 10% – Types of Credit Used
  • 10% – New Credit Applications

Each of our tips will boost a specific credit score factor. They are easy to do, and none of them ask you to pay off large portions of your debt.

Follow these 7 steps to start raising your credit score…

1. Set Up Automatic Payments

Late payments has the largest effect on your payment history.

Often times, we have the money available to pay a bill – we just forget to do it!

Even if you try and pay a bill before the due date, sometimes there can be issues processing the payment on time. (Weekends, holidays, mailman, etc.)

Each late payment stays on your credit report for at least seven years. The more recent your late payment is, the bigger the damage it does to your credit score.

Setting up automatic payments solves all these problems.

Make a list of your recurring monthly payments. (Credit card, student loans, utilities, etc.) Give them your bank account details or a blank check to set up automatic payments.

It will be their responsibility to withdraw the money from your bank account on the due date. As long as there is money in the account, you won’t get penalties for any late payments in the future.

TIP: Add “overdraft” to your bank account to ensure you always have money in your account. The small interest charge you pay is better than a big drop in your credit score due to a late payment.

2. Use Less Than 30% of Your Available Credit

Having unpaid debt doesn’t lower your credit score.

The credit bureaus look at how much debt you have compared to the total amount of credit available to you. They call this your “credit utilization ratio (CUR)”.

A high CUR can lower your score. A low CUR can raise your score.

CUR = Total Outstanding Balances / Total Available Credit

For example: You owe $1,000 on your credit card and another $2000 on your personal line of credit. Your total outstanding balances would be $1000 + $2000 = $3000.

Let’s say that credit card has a $5000 limit and the bank is willing to loan you $3000 on your personal line of credit. Your total available credit would be $5000 + $3000 = $8000.

Using the equation above, your CUR would be $3000 / $8000 = 37.5%.

You want to aim for a CUR under 30%. This shows lenders that you are responsible with credit and don’t over-extend yourself.

In the example above, we recommend that you try and get an increase on your credit card limit. This would raise your total available credit and bring down your CUR. If you have the funds available, you could pay off a small part of the total debt. This would lower your total outstanding balances and lower your CUR.

TIP: Don’t make the mistake of closing a credit card account. This reduces your total available credit, and increases your CUR. Only close if you can’t justify paying the annual fee. Get them to downgrade you to a card with no annual fee instead.

3. Borrow Someone Else’s Credit History

Do you trust your spouse? Your parents?

If so, you can take advantage of their good credit history.

Have them add you as an authorized user on their credit cards. They just have to make a quick phone call to their credit card company to do it.

Don’t carry the card in your wallet or purse. Just have the person add you as an authorized user, and forget about it.

Every time they make a monthly payment it will boost your credit history aswell.

WARNING: If the person who added you falls behind on payments, the bad credit history will apply to you also. Only choose someone you trust completely!

TIP: The age of your credit history is just as important as the quality of it. Start building credit with a secured credit card or a student credit card (if you qualify for it).  Just make sure to make the payments on time every month!

4. Mix It Up

Lender’s love to look at your “credit mix”.

Credit mix is all the different types of credit you have. People who have experience with different types of credit are more likely to repay their debt.

The different types of debt are revolving debt and installment debt:

  1. Revolving Debt: Credit cards, Lines of Credit, Monthly Bills
  2. Installment Debt: Mortgages, Auto Loans

Your credit mix makes up 10% of your credit score. It can have a bigger impact on your score if you don’t have much payment history.

The best way to boost this credit score factor is to ensure you have a good variety of credit accounts.

Here are some tips to increase your credit mix:

  • Split the bills. If your spouse has all the monthly bills under their name, considering putting half of them on your name.
  • Take the credit card plunge. We recommend that you have one no-fee credit card. Put some small charges on there every month and make sure to pay it off. This will be helpful when applying for a mortgage later on.

Your credit mix has a smaller affect on your credit score than the other factors do. It’s not realistic to take on installment debt if you don’t need it. It’s always best to focus on good payment history and keeping your balances low.

5. Timing Is Everything

Every time a lender checks your credit, your score goes down 10-20 points.

As long as your payment history stays the same, your score will return to normal in a few months. (Phew!)

A common credit score mistake is allowing too many credit checks in a short amount of time. Imagine 5 credit checks in 1 month, your score could be down 100 points! It could take you over a year to recover from that.

Timing is everything when it comes to your credit score.

Luckily, this is the credit score factor that you have the most control of. Lenders and banks need your consent before running a credit check.

Spread out your credit checks. One credit check every 3 months is a good rule to follow.

Here are some tips to reduce your number of credit checks:

  • Don’t apply for more than one credit card at a time. Do your research online and apply for the card you like the most. If you don’t get approved, wait a few months before applying for another one.
  • Shop for rates within 30 days. When shopping for mortgage rates it is common to have your credit checked by a few lenders. The credit bureaus will consider this as one credit check if it’s within a 30 day period.
  • Take advantage of pre-approved offers. Your local bank is great for this. Often they will pre-approve you for credit cards, limit increases and lines of credit. Pre-approval means they don’t need to do a credit check. Take advantage of these offers as long as there are no fees associated with keeping them.

Follow those tips to take control of the timing of credit checks. Sign up for free credit monitoring to see all the new credit inquiries on your account.

6. Keep An Eye On Your Credit Score

You can’t improve what you aren’t tracking.

Would you start a new diet without weighing yourself first? Improving your credit score is the same thing.

78% of people don’t know what their credit score is. 96% of people aren’t monitoring their credit score.

In the last few years alot of free monitoring services have come available. There is no excuse not to be tracking your credit score on a daily basis (especially when it’s free!).

We recommend signing up for a free account at Credit Sesame. You can be viewing your free credit score and report in less than 90 seconds. No credit card needed, no obligation, and it doesn’t affect your credit score at all.

They send you daily monitoring emails to let you know about changes to your credit report. This is important when we are trying to improve our credit score and clean up our credit report.

Click here to sign up for your free Credit Sesame account.

TIP: Avoid credit score sites that ask for your credit card information. After your free trial period ends, they will charge you to continue with their service.

7. Check Your Credit Report For Errors

1 in 4 people have an error on their credit report.

(Click here to get your FREE credit report from Credit Sesame)

It could be a small error like an incorrect address, or a large error like an unpaid debt that you didn’t incur.

Depending on how significant the error is, it could be costing you 100’s of points off your credit score!

These are the 3 types of errors that could exist:

  1. Account Error:  A debt is showing that doesn’t belong to you
  2. Derogatory Mark Error: A debt that you paid is still showing as unpaid
  3. Personal Information Error: Wrong name, address, or employer information is showing

Account Errors and Derogatory Mark Errors have the largest affect on your credit score. They stop you from getting approved for new credit and lower interest rates.

Personal Information Errors shouldn’t affect your credit score. They do raise concerns about potential identity theft and fraud.

The best way to resolve these errors is to dispute them with the credit bureaus. Equifax, TransUnion, and Experian allow you to file disputes online. 70% of online disputes can get resolved within 14 days.

Here are the links to do an online dispute with each credit bureau:

  • Equifax: https://experian.referral.equifax.com/CreditInvestigation/home.action
  • TransUnion: https://dispute.transunion.com/dp/dispute/landingPage.jsp
  • Experian: http://www.experian.com/disputes/main.html

Feeling overwhelmed with the dispute process?

You can always hire professionals to do it for you.

We recommend the team at CreditRepair.com to handle these disputes. They charge you $99.95 per month to be a client, but most disputes get resolved within the first month!

Click here to sign up online, and they will start filing disputes within 24 hours.

100 Points in 90 Days…It IS Possible!

We challenge you to follow our 7 steps and see how effective they are.

Remember to track your progress with your free Credit Sesame account.

Some of the changes we recommended only take a few minutes to do. Others were about making you more aware of how your actions can affect your score. We want you to keep those in mind when making financial decisions in the future.

Financial literacy is at an all-time low across the world. Lenders and banks take advantage of that by offering high interest rates. We want our readers to be better prepared for their next credit check.

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