Everyone wants to know how to fix their credit. We need good credit for everything from buying a house or getting a loan to getting a credit card or renting an apartment. And, while building better credit isn’t an overnight journey, you can get there with good financial habits.
This begins with knowing how your financial decisions can affect your credit. Here are five habits that you should be making (or breaking) to improve your credit score.
Know what’s on your credit report
Before you can improve your credit score, you need to know what’s on it. You can request a copy of your credit report for free if you’ve been recently denied by a credit bureau. You can also get a free copy every 12 months from all three major companies by visiting www.annualcreditreport.com.
Stop applying for credit cards
Chances are if you’re working on fixing your credit, you are not going to qualify for a card right now. Every time you apply for a credit card, you take approximately 17 points off of your credit score. Now is the time to work on reducing your current debt and paying bills on time.
Request credit bureaus remove old negative items
Once you know what’s on your report, identify and remove errors and old negative items. Send a certified letter — do not dispute the item online — to each credit bureau where the delinquency or error is memorialized requesting it be removed. Once received, the credit bureau has 30 days to verify the claim. If the credit card agency or bank fails to verify the items in 30 days, by law, the item must be deleted. (I suggest sending these letters during the holiday season when many are on vacation).
Negotiate overdue balances
If some of your accounts are already in collections, work on making deals with your creditors. Save at least one-third of the total amount due on an account, then call the collection agency and negotiate. I recommend offering this “saved amount” in exchange for the collection agency to delete the item off of your credit report. If they agree, you must get it in writing before you submit the payment.
Once a signed agreement is obtained, mail a check with the language, “paid in full” in the memo of the check or money order.
You must get a copy of the cleared check and mail it along with the settlement letter to each credit bureau by certified mail. If you pay by check by phone or Western Quickpay, include a copy of the receipt in your settlement letter.
Reduce your debt-to-credit ratio to 20 percent
Your debt-to-credit ratio plays a major factor in your credit. Work on paying down your current credit card balances and old debts. Starting with the card with the highest interest rate or smallest debt, pay off more than the minimum amount until you get your balance down to 20 percent of limit or less. Once there, start the process on your next card.
Don’t close credit cards
Do not zero out or close out unused credit card accounts. Yes, debt may be depressing, but do not pay the entire balance. Closing a credit account will not only raise your debt-to-credit ratio, but it will also reduce your credit history length. Remember, the purpose of credit is to prove that you know how to use and keep credit.
Don’t ignore your current bills
Of course, pay your bills on time while working on fixing your credit. Just one late payment can drop your score by 50 points or more. Should bad circumstances present themselves, pay at least the minimum within 30 days of the original due date.
Mix up your credit portfolio
Over time, as your credit improves, ensure your credit is a mix of retail and bank-issued credit cards, along with installment loans such as car notes or personal loans and student loans. Even if you are already paying your bills in a timely fashion, this can help boost your score an average of 20 points.
Improving your credit is more of a marathon than a sprint. These are just a few ways to start your personal race to good credit. The key is to never give up and keep trying. Do not feel helpless regarding your credit score! With persistence and consistency, you can increase your score well over 100 points in just a few months.
Nickie Robinson received her B.A. in Economics from New York University and her Juris Doctorate from the University of Denver where her concentration was corporate, securities, and tax law. She worked in finance for four years before embarking on a 10-year career in public relations, establishing herself as a highly sought-after business and marketing consultant.
—Disclaimer: The opinions and financial advice expressed in this article are solely those of the contributor’s and not the MSR’s.