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10 Hacks to Improve Your Credit Score

By Laura Agadoni · Jan 12, 2016 · Mortgage

10 Hacks to Improve Your Credit Score

Image courtesy of BeSmartee, Credit-Score-Hacks

When I was just out of college, I never thought much about my credit report or the significance of having a high or low score, that is until my car was repossessed. Once that happened, I learned fast.

Any time you don't pay back a loan or have continual late payments, your credit score goes down, and lenders won't want to deal with you.

FICO scores range from 300 to 850. Generally 300 to 579 is considered very poor, 580 to 619 is poor, 620 to 659 is fair, 660 to 669 is good, 700 to 759 is very good, and 760 to 850 is excellent.

FICO credit score rating scale

Red signifies danger! If you're in the red - it's time to improve your credit score.

Having a low credit score means that it will be more difficult to get a loan—any kind of loan—until the score rises. You could be denied apartments and even a job with a bad credit score. It might seem crazy to be denied a job with a low credit score unless maybe you plan to work in finance, but some lenders equate your credit score to your character.

In my case, being late with my car payment one too many times was more serious than I ever imagined. But the good news is that once I became responsible with credit, my credit score started to rise, and after seven years, that repo was off my record.

Keep in mind that it's much easier and faster to tank your credit score than it is to improve it. You'll need to adopt the turtle mindset of winning: slow and steady. Before you know it, you'll have good credit and all the opportunities that go along with it. Here are 10 hacks that will help you improve your credit score if you've done something (like I once did) to damage yours.

1. Get a Copy of Your Credit Reports

There are three credit bureaus, Experian, Equifax, and TransUnion. You are entitled to a free credit report from each bureau every 12 months. All you need to do is request one. When you go to each bureau's site, they all try to get you to pay for a credit score product. It's up to you whether you wish to do that. But you don't have to pay anything. You are entitled to a free report. Click the link for Experian to get your free report. Equifax and TransUnion send you to to get your free report.

You won't see your credit score if you order only the free credit report. But that's OK for now. What you first want to determine is whether there is incorrect information on any of the reports. Each bureau could have different information on you, which is the reason you want to view all three reports. Credit bureaus get their information from various sources, such as banks, retailers, mortgage lenders, and any lender you've done business with, and not all lenders report to all three bureaus. Some lenders don't report at all, which is the reason for any discrepancies.

Given that so many lenders report to the bureaus, there's a chance that someone reported something wrong or that something was recorded incorrectly. If you've been a victim of identity theft, you'd really have a messed up report. Any error can incorrectly lower your score. Check to make sure that your name and address are correct. Make sure all your credit cards and credit accounts are on the report, and make sure that you don't see any on there that aren't yours or that you don't recognize. Make sure your payment history is correct, and the date you opened the account is accurate. If there is correct negative information on your report, make sure it's not there after seven years (10 years for bankruptcies and 15 years for unpaid tax liens).

The hack in this case, if you've discovered an error, is to let the credit bureau know about it, either online, by phone, or by mail. That was easy, and you should see your score improve shortly. The bureaus have to respond to you within 30 to 45 days. After the bureau completes an investigation, it will delete the bad information. Of course, if you are wrong and the information is correctly on there, that information will remain on your report.

2. Start Making Your Payments on Time

If you have the money to pay your bills, but you just never seem to get around to paying them until you're already late, stop doing that. You're hurting your credit score unnecessarily. Payment history makes up 35% of your credit score. There are a few ways to ensure you pay your bills on time. Pick one that works for you.

how your FICO credit score is broken down

As you can see, your payment history is the most important factor when it comes to improving your credit score.

The first way is to simply pay the bill as soon as it comes in. If you pay online, you can set the date for payment for when the bill is actually due. But if you were the type to do that, you probably wouldn't have paid all those bills late to begin with. So that brings us to the second option.

Set up a reminder on your phone. If you follow your calendar and do what's on it, this might work for bill paying as well. Some banks will send you a text when your bill is due. That might work better for you. If reminders don't do the trick, and you just can't trust yourself to get around to paying your bills, use option three.

Enroll in automatic bill pay. This way the credit card company or lender deducts your payments automatically from your bank account. This works best for loans that are the same amount each month, like your car payment, student loan payment, or mortgage payment. But there are downsides to auto pay. If you don't keep a high enough balance in your bank account to cover your bills, when the auto pay hits, you'll be charged an overdraft fee. In addition, auto pay doesn't work well with a credit card because the amount paid will be the minimum. Although your payment gets paid on time, you really should not be paying only the minimum on your credit card. That puts you on the road to getting into credit card debt. And a final word on auto payments: If you do use this method of getting your bills paid on time, make sure you review your statement each month to check whether there are any errors.

3. Pay Off Debt

Your credit score will improve if you don't use all the credit available to you. Just because you have an $8,000 limit on your credit card, for example, doesn't mean you should use it. Amounts owed makes up 30% of your credit score. A good rule of thumb is to use as little credit available to you as possible, not going over 30% if you can. The reason is that lenders become nervous lending to someone who uses all their credit. That situation signals that you aren't bringing in enough money to sustain your lifestyle and that one more loan could put you in a position of not being able to pay back the loan.

If you are maxed out on your credit cards, take steps to pay them down. This won't be easy, but when you get out of or nearly out of credit card debt, you'll feel as if a huge weight has been lifted off you. The first step you must take to get rid of credit card debt is to stop using your credit card. This means you can only use cash or your debit card, which limits you to spending only what you have now. You'll probably need to create a budget to ensure you don't run out of money by the end of your pay period, causing you to use your credit card again.

The next step is to make a plan on paying off your card. If you have credit card debt on multiple cards, tackle one card at a time, while maintaining the minimal payments on the other cards. You have two choices on which card to pay first: the card with the highest interest rate or the card with the lowest balance. The first way makes the most financial sense, but the second way provides a greater sense of satisfaction as you pay off each card. Whichever you choose, pay as much as possible each month until you've paid down one credit card. Work on the next one as soon as the first card is paid off. You'll be out of credit card debt in no time, and your credit score will soon rise. Note that you might need to cut back on certain expenses to make this work, and as we said earlier, it probably won't be easy. If you can't do this on your own, consider using the services of a credit counselor. Check with your financial institution to see whether it offers one.

4. Get a Credit Card

If you don't already have a credit card, it's important that you get one to establish credit. If you use it responsibly by always making your payments on time and if you use less than 30% of your available credit, you'll be creating a good credit history, which leads to a good credit score. The problem is that if you don't already have a credit card and you have bad credit or no credit, it will probably be difficult to get a credit card. That creates quite the Catch-22 situation. But there are two options you have.

The first option is to get a secured credit card. This financial product is for people who need to establish or build credit history. You use a secured credit card just as you use a regular credit card. You are given a line of credit that you can use, but the catch is that you must deposit money equal to your credit line with the secured credit card company. There is typically a high interest rate associated with secured cards, and most of them charge an annual fee. If you take out a secured card, make sure it reports to all three credit bureaus. When you've established credit or built up yours sufficiently, you can cancel the secured card and apply for a regular credit card.

The second option is to ask to be an authorized user on someone else's credit card, typically your mom's or dad's card. Only ask for this option if the person you're asking has good credit habits. Once you're an authorized user on a card, their payment history becomes yours, for better or worse. Check with the credit card company to make sure it reports to the credit bureaus.

5. Don't Use a Lot Of Credit Cards

If you have multiple credit cards, it's OK to use them all, but there comes a point where using too many cards hurts you. FICO analyzed what the high scorers (785 and above) do regarding credit cards and found that this group has an average of seven cards but uses only four of them. Carry around your go-to cards, and put the rest away in a safe place.

6. Leave Your Credit Card Accounts Open

Although you shouldn't use too many credit cards (probably no more than four), you also shouldn't close credit card accounts, particularly older accounts. How long you've had a credit card account is part of your credit score, and the longer your credit history the better. Length of credit history makes up 15% of your credit score. If you're paying down debt by paying off your card, when you pay the card off, don't close it. You don't have to use it right away or at all, but keep it open. You can store your card in a desk drawer or a safe at home so you won't use it on accident. The exception to not closing a credit card is if the card charges an annual fee. You probably don't want to pay for something you never use. But before you close the card, it's worth a shot to call the credit card company and let it know that you plan to close the account unless it waives the annual fee.

7. Ask Your Creditors for a Favor

Although you can't remove a bad mark on your credit report, such as if you let a bill go to collections, you can ask your creditor for a favor. Tell your creditor that you'll pay the balance you owe immediately if they'll let the credit bureaus know that you paid the bill. If they agree, get it in writing.

8. Ask to Have Your Limit Raised

If you are using a high percentage of your available credit, ask your creditors to raise your limit. If you've handled the credit you have well, they should raise your limit. But don't spend up to your limit. The reason you're doing this is to lower your credit utilization ratio, which could improve your credit score.

9. Use Different Types of Credit

Another way to raise your credit score is to have a good mix of credit. A good credit mix consists of credit cards, retail store cards, installment loans, and a mortgage loan. Don't feel as if you need all of these. Credit mix makes up 10% of your credit score. It really doesn't matter too much if you have a great credit mix, but if you don't have much of anything on your credit report, a good mix of credit could help.

10. Don't Apply for a Lot of New Credit

Opening too many new credit card accounts or taking out too many loans at once hurts your credit score. New credit makes up 10% of your credit score. Accumulating cards over time, not all at once, is the way to do it to get the highest credit score.

Bottom Line

You might be tempted to skip these hacks and go straight to the guy who promises (for a fee) to fix your credit score fast. They might do this by providing you with a new number to use instead of your Social Security number. But this number might be a stolen Social Security number. Or they might have you apply for an Employer Identification Number (EIN), which shouldn't be used in place of a Social Security number. Don't do business with any credit repair companies. You're likely to get in legal trouble for fraud. There are no quick fixes to improving your credit score, but the longer you practice good credit habits, the better your score will get.

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