Whether you want to accept it or not, your credit score is one of the most important figures in your life. It dictates almost all financial aspects of your life. It is what determines whether you will be approved for a credit card or the rate you are likely to pay for your mortgage.
As the economy has continued to recover from the recession of 2008, many Americans have been able to improve their credit rating. However, almost a third of Americans still have a credit score that is below 600. If you are one of them, here are a few quick fixes that can assist you to improve your credit score.
Correct errors on your credit reports
When you receive your credit report, it is possible for you to dispute any errors that it contains. A federal body found that about five percent of all people in the US have an error in at least one credit report from the major credit bureaus. Some of the most common errors that you can expect to find on your credit report as simple as identity mix-ups. Others result for negative items being erroneously left in the report even though they should have been removed. The steps for correcting errors are:
• Request for Copies of Your Report
The reports from the three major credit bureaus can be found at this site, which is federally approved. Look at the reports carefully. Ensure that you check for items, which may not be yours. Besides that, check for items that have been double reported. Check for balances that you have paid and many other errors.
• Dispute the Mistakes
After noting various discrepancies on your credit report, send a dispute to the three leading credit bureaus. The bureaus allow you to send your dispute online. If you are thinking of using an organization that charges for credit repair, be wary of fraud. Ensure that the company explains your rights to you. Besides that, a genuine company will not ask for the entire fee upfront. Unless your credit problems are complex, your money would be better off used to pay the debt.
Make Payments Strategically
The minimum payment needed for anything that you could go a long way in helping you avoid a poor credit score. A late payment usually contributes to a seven-year smudge on your credit score. To make payments strategically, you must:
• Be On Time
The easiest way to avoid missing any payments is to automate everything. However, if you live paycheck to paycheck, ensure that the bills are staggered. That way, you will not incur a fee for over drafting.
• Pay Bills that Have Not Been Sent to Collectors
If you are one month or two on your credit card or utility bill, it is important that you start by paying those first. Payments made one or two months late will not have a major effect on your score as much as those made three months or later. Once all the accounts are current, the data for your credit score will start being positive. The late payment will still appear, but the impact will be less with time.
• Pay Debt that Has Gone to Collection
This demonstrates that you are paying what you owe. If it has been charged off, ensure you pay that in full. Otherwise, the collection process will start again, and it will be on your account for seven more years.
Do Not Max Out You Credit Utilization
This is simply the amount of available credit that you use. It takes your credit balance divided by your borrowing power. Lenders see that you are not utilizing too much of your borrowing power. If you are using too much of it, you will have a hard time paying it all back. The best figure is at least 30 percent below your borrowing power. Some tips to work on your credit utilization are:
• Avoid Closing Any Cards
When you do that, your credit limit reduces. That means you will have less borrowing power. It thus raises the credit utilization score, which you do not want to happen.
• Utilize Cash Reserves
If you have any balances, use cash to pay for them. However, if you face any issues in the near future, you may have to dip into your credit again to make ends meet. Unless you foresee any problems in coming months, it is a nice gamble.
• Utilize a 401(k) Plan to Pay Balances
The loan will allow you to keep credit utilization under 30 percent, which is good for improving your credit score (see here). This process can be completed within just a few weeks. Besides, it allows you to avoid high-interest card debt for a loan interest loan from your retirement assets.
The biggest drawback of this type of strategy is that retirement plan loans need to be repaid within five years. They are generally deducted from your paycheck, which could squeeze your cash flow. Besides that, if you leave your employer early, the balance of the loan will be considered an early retirement plan distribution, which is taxable.
Negotiate with the Credit Card Company
Sometimes, you may stop paying your bills to because you were going through a rough patch of unemployment. However, you have the option to call your creditors and request them to erase the debt that went to collection. Write a letter saying that you will pay the balance if your creditor agrees to send a report that the amount was “paid as agreed.” You can even request to have it removed. You should, however, ensure that your creditor agrees in writing before making the payment.
You can also request for a “goodwill adjustment”; it is especially so if you had a pretty good record until you lost your job. If you missed a payment or two that has smudged your credit report, ask the card company to consider your previous perfect record. You never know, it could happen.
Check the Limits
Ensure that it does not appear as though you are maxing out your cards. Sometimes they may forget to report that your credit limit has been bumped up. This adjustment could help boost your credit score.