More than likely, you have had your fair share of good and bad credit. Most of us have. Regardless of the reason, our credit history is impacted by many things, and it starts the very first day you take out a loan, a credit card, or make a purchase on payments.
If you are like many Americans, once you have one credit account, you end up opening multiple. Many times, in a short period. Your credit history grows and ages, along with each credit account you open.
Life has a way of getting in between our plans and goals and sets us back. The loss of a job, family illness, or the birth of a new baby can cause us to get behind on our obligations. Then it seems like we’re always playing catch up to get back on track with our financial goals.
If you are like most individuals, waiting around for a credit score to make its way up from a bad to an excellent standing can be tough. The truth is, improving your credit score takes time, and to get back on track takes diligence and dedication.
How to read a credit report
Credit scores range from 350 to 850. Typically, any score between 350 to 600 is considered low to fair. 650 to 850 are good to excellent. For the most part, credit reports that reflect negative scores, fraudulent accounts, delinquencies, charge-offs, collection accounts, and a high credit card balance typically lowers a credit score.
A credit report is not the same as a FICO credit score. A credit report is a preview of your financial history. A credit report is needed for, not only lenders, but often employment, utilities, and housing associations that need to verify good credit and payment history. You must understand how to read your credit report.
Experian, TransUnion, and Equifax are the three major credit bureaus that collect public record information to build your report. Your credit report has four sections of relevance:
Personal Information that includes your full legal name and both current and past addresses, date of birth, and Social Security number.
Credit History includes closed and open credit accounts and the financial snapshot of your ability to repay along with late or missed payments through the duration.
Public Records typically include any records related to your finances.
Credit Inquiries include any company or person who has checked your credit in the past two years.
Carefully review your reports from each credit bureau to identify any discrepancies.
What is considered a good credit score?
- Perfect credit score: 850
- Excellent rating: 740-849
- Good credit score: 700 to 739
- Fair score: 650 to 699
- Low score: 649 and below
What is the quickest way to improve a credit score?
Of course, the quickest way to improve your credit score is to pay off all your debts. Your credit report updates and changes monthly, so every missed payment counts.
Paying off credit card balances is also a fast fix that can improve your score under the credit utilization factor. Paying down outstanding debt minimizes your debt-to-income ratio that also affects your credit file.
For credit accounts in collections, you could see a major improvement to your FICO score, from one to three months after it’s been paid off. The higher the number of late payments you have, the longer it takes to fall off your credit report and can stay there for several years.
A hard credit check or inquiries when applying for an auto loan, credit cards, or an installment loan can remain on your credit report for years.
Review your credit reports from all three credit reporting agencies to see what is causing your FICO credit score to drop. Focus your effort on the accounts that will have the most significant impact.
If your credit report looks accurate, here are a few ways to improve your credit score effectively.
If you lack credit, the best option is to get approved for new credit by applying for a small loan through your local bank to help establish credit. Make sure to make your monthly payments on time. A good rule of thumb is to make the monthly payments and try and pay off the loan within a six-month window. Once you have successfully completed the term of the loan, you should either take out another loan or apply for a credit card. Again, make the payments regularly. By doing this, you are showing other creditors that you are trustworthy in making payments.
If you have credit established, but you want to improve your credit score, you should make sure to bring all delinquent accounts current. Many people think that paying off all of their debt is the best way to go and end up feeling overwhelmed when they are not able to do so. One way to help keep the stress low and make the most significant impact on your credit score is to bring all delinquent accounts current. Then focus on paying off the smallest debts first. Settling accounts that are in collections can also improve your score quickly. Keep in mind that your late payments can remain on your credit report for up to seven years.
If either of the above options is not suitable for your situation, you may consider applying for a secured credit card. While the interest rates are often higher, the credit limit is determined by the initial deposit that ensures your ability to pay. Typically, the deposit also determines your available credit. A secured credit card can help you establish a payment history.
Can you correct errors on your credit score?
If you’re hoping to increase your credit score fast, the first place to start is by correcting any errors on your credit report. It is not uncommon for a credit bureau to make a mistake and not update it correctly due to human and technological errors.
It is advised that you look at your credit report at least every quarter. The great news is you can correct credit rating errors on your credit report. You can contact the credit bureau and the lender or credit provider that reported the information to ensure mistakes are corrected as quickly as possible. According to the Fair Credit Reporting Act, both are responsible for correcting inaccurate or incomplete information, and the bureau must investigate within 30 days.
Finally, if the investigation does not produce the results you need, and the information in your credit report is causing you harm, you may consider hiring a credit professional to help you resolve the issue.
The goal is to have a good credit score. But there are times when improving the score seems daunting since the recovery time from missed payments or delinquencies can vary per situation.
As many consumers know, your credit score can determine the interest rate you’ll pay for credit cards, car loans, mortgages, and revolving credit. Those three digits on your credit profile can save you tens of thousands of dollars over time or cost you just as much. Roundleaf will help you discover how to reset your debt and determine what next best steps to take to achieve a higher credit score.