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Chapter 3: How to Improve Your Credit Score

5 strategies you can implement within 30 days

If your credit score is less than stellar or you’re looking to improve it for better interest rates, there are a variety of tangible strategies you can employ to boost your credit score in a relatively short time:

1. Pay your bills on time 

Always pay your bills on time. Failure to do so, even one time, can show up on your credit report and negatively impact your score. If you have a history of being even a day or two late on paying your bills, fix it now, and set up a schedule to ensure you don’t miss your bill-pay deadlines or set up autopay.

2. Don’t use too much credit

Credit utilization also impacts your score. If you have three credit cards, all of them used to the max with minimal to no available balance, that’s going to negatively impact your score. Reduce your credit card balances. 

Generally, creditors prefer to see your credit utilization standing at 30% or less. That means if you have a credit limit of $20,000, you should use $6,000 or less of that credit. And if you want to have an excellent credit score, that credit utilization ratio should stand at 10% or less.

The good news? Credit utilization fixes can impact your score really quickly. If you pay down a high balance one month, you’ll likely see a dramatic improvement in your credit score the next month. 

Credit Utilization

3. Have a mix of credit 

It’s important to show you can manage a variety of credit accounts. Having only credit cards, for example, can negatively impact your score. Creditors want to know you can handle both installment accounts (like a mortgage, auto, or personal loan) as well as revolving accounts (like credit cards). If you only have an auto loan, consider opening a credit card account to enhance your credit mix.

4. Establish a credit history

Once you pay off a credit card, it’s tempting to close the account to prevent further usage of it, but don’t … especially if you’re getting ready to apply for a mortgage loan. Lenders like to see credit history, and the longer you’ve held a credit account successfully, the better. So even if you’ve paid off a credit card you’ve had for 10 years, don’t close the account. Plus, a credit card with a $0 balance is a boon to your credit utilization score!

5. Don’t over-apply for credit

If you know you’re likely going to be house shopping and applying for a mortgage loan in the coming year, avoid applying for new credit accounts, whether that’s an auto loan or a credit card. While applying for preapproval on a mortgage loan won’t negatively impact your score, applying for three new credit cards will. 

How to prioritize your credit repair journey

So perhaps you’ve got less-than-stellar credit but are looking to buy a new home in the next year or two. You can repair your credit with a little discipline so you’ll both qualify for that home loan as well as garner an affordable interest rate. Here are four tips to get you started on your credit repair journey:

  1. Create a weekly or monthly budget that will help you spend within your means, and then stick to it. Record what you’re actually spending against what you’re allowing yourself in your budget. This will help ensure you’re staying on task and avoiding using credit cards, for example, to cover expenses. 
  2. Bring down your balances. The safest way to do this is to pay off as much of your credit card or other loan debt as possible. However, you can also grow your credit score by asking for a credit line increase to make your available balance higher. The danger of this, of course, is that you’ll keep spending on that available balance. 
  3. Keep your credit report active. That means use the credit you have. You don’t have to go out and buy an expensive laptop on your credit card, but use your cards to make small purchases occasionally to demonstrate to possible lenders that you know how to use the credit you have responsibly. 
  4. Check your credit report for errors. Perhaps your report shows a collection against you that you’ve already paid. Contact the debt collector to make sure they remove the collection from your report. Other things to look for and correct include:
  • Late payments. If you’re all caught up on your auto loan payments, even if you made a late payment once or twice, call your creditor about getting those late payment marks removed from your report.  
  • Charge-offs. Settle the delinquent debt as soon as possible, and then ask the creditor to remove the charge-off from your report.
  • Inquiries. It’s not uncommon for both authorized and unauthorized credit inquiries to show up on your report. If you didn’t move forward with a loan application (say for an auto loan or a new credit card), call the creditor to remove that inquiry from your report. 

Keep in mind it could take time for your credit score to improve even once you make the above changes. If you plan on making a large purchase (like a new home) in the next year, start working on repairing your credit now. If you need to fix your credit in a shorter time frame, then you might want to consult a credit consultant like SOS Credit Solutions for help.

  • Set up a schedule to ensure you don’t miss your bill-pay deadlines or set up auto pay.
  • Reduce your credit card balances. Creditors prefer to see your credit utilization standing at 30% or less.
  • Creditors want to know you can handle both installment accounts (like a mortgage, auto, or personal loan) as well as revolving accounts (like credit cards). If you only have an auto loan, consider opening a credit card account to enhance your credit mix.
  • Even if you’ve paid off a credit card you’ve had for 10 years, don’t close the account. Plus, a credit card with a $0 balance is a boost to your credit utilization score!
  • If you know your going to apply for a mortgage loan in the coming year, avoid applying for new credit accounts, whether that’s an auto loan or a credit card.