Tips to Improve Your Credit Score

A person’s credit score is one of their most valuable financial assets. It determines whether credit will be given and, as well, how much that credit will cost. If you have a low credit score, read the following tips before you seek professional financial help.

Your Credit Score

Credit scores vary from 400 on the low end to a top peak of 850. An individual who has a reasonable amount of debt, makes all debt payments on time, has had no collections or suits, and who has never filed for a bankruptcy can expect a score between 750 and 850. Scores can fall below 750 for a variety of reasons, but to qualify for a reasonable rate, a consumer ought to maintain a credit score above 680. If your credit score is below 680, you are likely paying high interest rates on your outstanding debts.

Reasons Your Credit Score May be Low

A trade-line is an individual item on a credit report. Each credit card, revolving loan, mortgage, etc. is a trade-line. For a good credit score, an individual needs to have a minimum of three trade-lines which show perfect payment history for one full year.

One thing that will cause a credit score to drop is if “bad debt” makes up more than one-half the balance of the high limit. Bad debt is defined as credit card debt and personal loans for which there is no collateral. Conversely, a credit score will increase nicely when bad debt is paid down below one-half the balance of the high limit. A credit score can increase from 20-40 points when this is done.

Analyze Your Credit Report for Errors and Duplications

Get a copy of your credit report and go through it very carefully. If there is any debt on it that is not yours, you need to begin the process of getting that debt off of your report. This often occurs when parent and child share the same name, or, more recently identity theft. You must contact each of the three major credit bureaus and follow the process they outline for you. Also sometimes the same debt appears more than once on a report.

If you failed to make payments on a credit card, that will be listed in the “Derogatory” section. If the credit card company has turned this debt over to a collection agency, then it can appear as an additional derogatory item. If the collection agency eventually turned this debt over to the courts, and a judgment was rendered, the debt may appear a third time under “Public Records.” Thus, the same debt is reported three times and has affected the credit score three times. Again, you need to contact the three bureaus and provide proof that all three of these items relate to the same debt, in order to get the reporting reduced to one. The credit score will rise as a result.

How to Increase Your Credit Score

If you have had credit problems, especially with late or missed payments, your score may well be in the 400-550 range. You may need financial help at this point, but there are ways to increase your credit score fairly quickly. One strategy is to go to a major bank and request a secured credit card. This card requires a deposit in advance. You are then able to charge amounts up to the amount deposited on the card. The card is reported as a trade line on your credit report, and it shows the balance paid in full each month. This will increase your score as much as 40 points each month.

After you have used a secured card for a period of time, consider applying for an unsecured card. If credit has been a problem, there may be an annual fee for this card and the balance limit may be quite small. Take the card and pay the annual fee. For the next 3-4 months, charge small amounts on this card and pay the entire balance off when the bill arrive. In this way, another trade-line will be placed on your report showing payment of the entire balance each month. Again, this can increase a score by as much as 40-60 points over a 4-6 month period.

A Final Word on Credit Score and Financial Help

Before you pay fees to a credit repair or financial help professional, it would be wise to see what you can do yourself to raise your credit score. Using one or more of the above strategies may be all you need to bring your score to solid level.