Oops -- you missed a credit card payment, went over your limit or made some other error that has dinged your credit. Now you’re looking for a car loan or mortgage and need to boost your score. While you can’t repair your credit overnight, you won’t need to hire a financial advisor to help you rebuild your good financial standing. Following a few basic pieces of advice, you can fix your credit and raise your score.
Check your Credit History
The first step in repairing your credit is to learn what is hurting you. Three credit reporting agencies, Equifax, TransUnion and Experian, collect financial information about you and sell it to potential lenders. If they have derogatory statements on your credit report, this lowers your score. Visit AnnualCreditReport.com to get free copies of your credit reports and see exactly what’s hurting you. If you find incorrect information on one or more of your reports, follow the instructions at the issuing agency’s website to get it corrected.
Reduce your Balances
Even if you haven’t missed a payment or defaulted on a loan, having too much debt in relation to your income hurts your credit. A general rule of thumb regarding credit card balances is to keep the amount of credit you use below 30 percent of the credit you have available. Creditors also look at the total of your monthly payments for mortgage, car or student loan and credit cards and compare that to your income to determine if your debt-to-income ratio is to high.
Keep the Right Cards
If you have more cards than you need, don’t automatically cancel the ones you aren’t using or that have high balances. Older credit cards add more points to your credit score because they show you’ve been good with credit. Newer cards lower your score, even if you pay them on time. Shopping for cards can also cost you several points off your score as potential card issuers pull your credit reports. Cancelling a card will also reduce the amount of credit you have available, increasing your debt to credit available ratio. If you are deciding between paying down a card with a high balance or one with a higher interest rate, consider your monthly payments. It might be better to pay down the card that requires the larger monthly payment so you have that cash to work with. You’ll pay more interest in the long run with the higher rate card, but have extra cash to pay that card down.
Have the Right Mix
Creditors want to see a mix of credit, including credit cards and installment accounts. Installment accounts are those you pay with a regular payment each month, such as a car loan or flat-screen TV you purchased for monthly payments. Too few installment accounts can lower your score, so before you pay off your car or TV early, consider if you’d rather keep the account open to help your credit score.
Pay on Time
While this sounds like a big, “duh,” many people get careless and miss payments. Even if you are good about paying your bills, hedge your bet by using online auto pay features to make sure a snail-mail bill doesn’t get lost. Log in to your accounts each month before your payment is due to make sure it arrived if you use the mail. Keep the lines of communication open -- “I thought you mailed the payment,” can end up hurting both of you.
Sam Ashe-Edmunds has been writing and lecturing for decades. He has worked in the corporate and nonprofit arenas as a C-Suite executive, serving on several nonprofit boards. He is an internationally traveled sport science writer and lecturer. He has been published in print publications such as Entrepreneur, Tennis, SI for Kids, Chicago Tribune, Sacramento Bee, and on websites such Smart-Healthy-Living.net, SmartyCents and Youthletic. Edmunds has a bachelor's degree in journalism.