If your credit score is poor – generally below 600, you’ll have trouble obtaining almost any type of credit. You’ll likely find it difficult to rent an apartment; bad credit can even disqualify you for many jobs. Fortunately, time is on your side. Derogatory items fade in importance as they fade further into the past. However, you must also be proactive in replacing negative items with positive ones. Following these 10 tips will help you raise your credit score to 700 – and beyond.
1. Maintain On-Time Payments
Maintaining a pattern of current, consistent pattern of payments on your bills is by far the most important single aspect of establishing and maintaining good credit. In fact, payment history counts for a whopping 35 percent of your total FICO score. Nothing can raise – or lower – a FICO score more than the way you pay your bills.
2. Correct Errors on Your Credit Report
If you haven’t developed the habit of checking your credit report regularly, it’s time to start. The odds are high that there is at least one error on your credit report. Even apparently small errors like a misspelled name can result in your shaky credit being comingled with someone else’s even worse credit. Each consumer is entitled to one free credit report annually from each of the three major credit bureaus: TransUnion, Equifax and Experian. Obtain your credit reports at the annualcreditreport.com website.
3. Pay Off or Settle Outstanding Bills
It’s true that if you wait long enough, many creditors will give up trying to collect what you owe. But the derogatory mark on your credit report will remain for up to seven years. If possible, contact your creditors to pay off or settle outstanding bills. If the bills have been referred to a collection agency, ask for the necessary contact information. Once you’ve paid off the bills in arrears, make sure your credit report reflects that fact.
4. Increase Monthly Credit Card Payments
If you’re only making minimum payments on your credit card bills, you may have current status, but you’re not doing yourself any favors. Ideally, you should pay off balances in full every month. But if that’s not possible, try to generate extra income or savings elsewhere so that you can start boosting your monthly payments. After a few months, you’ll begin to see a real difference in your balances – and your FICO score.
5. Maintain Low Debt-to-Available Credit Ratios
The aspect of your FICO score with the second-highest impact is your debt load, which counts for 30 percent of your FICO score. Carrying a high debt-to-available credit ratio can sink your credit. By resisting the urge to max out your credit cards, you’ll reduce your stress levels, and raise your credit scores.
6. Diversify Your Credit Accounts
Having different types of credit can boost your FICO score. If you have credit card debt, try to obtain an installment loan. If you can’t qualify for an unsecured loan, ask for a loan secured by a bank account or certificate of deposit. If you’re a member of a credit union, you may have better luck than applying at a bank.
7. Get a Secured Credit Card
You may have given up on credit altogether as a means of avoiding future financial difficulty. While that’s admirable, it’s no way to build good credit. Instead, scout out secured credit cards from reputable credit card companies. Secured credit cards are indistinguishable from regular credit cards, and responsible use will boost your credit score. One caveat – most prepaid credit cards DO NOT report to any credit reporting agencies, which means that they’re of no use in helping you boost your FICO score.
8. Piggyback Your Way to Good Credit
If you have family members with good credit, perhaps you can become an authorized user on one or more of their credit cards. Your credit will get an immediate boost but you won’t be responsible for any of their debts. Be careful with this tactic – if you slack off on paying your bills, you could trash your family member’s credit, not to mention your relationship. Likewise, if their credit takes a hit, yours will too.
9. Consolidate Your Bills
Consolidating your credit card bills into a single monthly payment accomplishes two purposes: eliminating high-interest credit card debt (and likely obtaining a lower total monthly payment) and giving you one place to pay and a single due date. But don’t make the mistake of running up new debts to replace the debts you wiped out. You should also avoid payday loans at all costs. If you cannot qualify for any other type of loan, you’re better off continuing to pay down your credit card debt.
10. Establish a Bank Line of Credit
If you’re a good, long-standing customer, you may be able to obtain a line of credit from your bank even if your credit is marginal. Having an available line of credit can boost your credit to debt ratio, which improves your FICO score. And unlike a loan, a line of credit usually does not generate payments due until you actually use it.
No Magic Wand
Barring the correction of multiple, serious errors on your credit report, it’s unlikely that you’ll be able to raise your FICO score from 550 to 700 instantly. It took time to sink your credit; you’ll need to exercise a bit of patience, along with your credit repair strategies, to yield results. However, following one or several of the strategies listed above WILL improve your credit report and raise your FICO score.