6 Ways To Improve Your Credit Score

A person using their credit.

Your credit score will always be the most important number in your life. It determines if you can qualify for credit and what rate you get and it could even get you or cost you a job. Because of its importance, you need to take care of this little number.

Luckily, it is not as hard as you think to improve your credit score. It is just math, there is no magic to it. Your credit score is simply a formula that takes various things into consideration.

If your score has seen better days, we can help. Take a look at 6 ways that you can start improving that credit score.

1) Check Your Report For Errors

First, lets do something easy and simply check your report for errors. It is very common for mistakes to happen. A creditor could have reported something incorrect about you or someone else’s bad credit information could have ended up on your report. It happens all of the time which is why you should check your credit often.

You can pull one credit report for free from each credit reporting agency. Be sure to get a report from each one, do not assume that they will all be the same. You need to get your report from Equifax, Transunion and Experian.

Once you have your reports, you can dispute anything that is false. Send a dispute letter to the bureau with the account in question identified. They then have 30 days to investigate the information. If the creditor can prove that it is real, it stays on your report. If they can not prove the information is accurate, it must be removed.

2) Decrease The Credit You Are Using

Credit utilization is the term used for the amount of your credit that you are using. If you have 1000 dollars in credit and are using 400 dollars of it, you have a credit utilization of 40 percent.

The less of your credit that you are using, the better your score will be. If you are currently using over 30 percent of your available credit, getting that number down will greatly improve your score.

To be considered to have good credit utilization, you should be using less than 30 percent of your credit. To be considered to have excellent credit utilization, you need to get that number below 10 percent.

If you have a lot of credit card debt, getting your balances can seem like an impossible task but you can do it. Take all of your credit card accounts and pay the minimum on all but the one with the highest interest rate. With that card, you will pay as much as you can and continue doing it until it is paid off.

When it is paid off, switch to the next highest interest and do the same. Eventually you will get there and you will see credit score increases along the way. It is not an all or nothing thing. You will see increases in your score as you head towards that magical 30 percent number.

Keep in mind that you should not close a card after you pay it off. If there is no annual fee, keep the card open. Closing it would decrease your available credit and harm your score.

3) Pay Those Bills

Nearly a third of your credit score is your bill payment history. If you want a strong credit score, it is crucial that you pay your bills on time.

If you have missed a few payments in the past, don’t give up. It will take some time but your score will gradually increase as time goes by and you make payments on time.

Assuming that you have the money to pay your bills, use every tool at your disposal to make sure that those payments get made. Use automatic bill payments, bill reminder emails and even bill reminder texts to make sure that your obligations get met .

If you are missing payments because you do not have the money, you need to redo your budget. Sit down, write out all of your bills and then see where cuts can be made.

4) Get A New Credit Card

In some instances, getting more credit can actually increase your credit score. This, of course, assumes that you get the card but do not use it.

Simply getting a new cad will increase your available credit. That will in turn, decrease your credit utilization and could result in an increase in your score.

When applying for new credit, do your research on cards. Choose one that you are likely to get accepted for and that does not have an annual fee. The last thing that you would want to do is to have to submit a bunch of applications and get dinged with multiple inquiries.

5) Avoid Inquiries

Although a minor part of your credit score, inquiries are still a factor. Multiple inquiries can cause your score to drop a few points. Usually it is not a significant amount, but with credit, every point matters.

Another thing to consider with inquiries is that some creditors will consider them when deciding to issue credit. Even if your score is decent, you could be denied credit due to the fact that you have been applying for credit with multiple companies. It makes you look like you are in financial trouble and could be a warning sign.

6) HaveĀ  A Little Patience

Keep in mind that with credit, you are running a marathon, not a sprint. If your score is a little rough, it will take some time to get things back in order. Creditors need to see that you are handling your finances well over time.

It could take a year or even years to get your credit in order. Stay on the path though and you will be rewarded with small increases along the way.

Why Did My Credit Score Drop 25 Points?

Question about a credit decrease

Your credit score i a very important number in your life. It dictates how much interest you get on loans, what you pay for car insurance and even if you get a new job. Fair or not, this number is going to affect you all of your life, so you need to take care of it.

Knowing how important your credit score is, it can be very troubling to find your credit score drop 20, 25 or even 30 points for seemingly no reason.

No, the credit companies do not have it out for you. Your score is based on a mathematical formula that takes into account several factors. There is a reason that your credit score dropped, so take a look at some of the possibilities.

Reasons For A 20 to 25 Point Drop

There are so many factors that could make your credit score drop. It could even be a combination of factors. Here are some examples.

Your Credit Utilization Increased

This is the ration of available credit to used credit. If you have 10,000 dollars in credit and have balances totaling 3,000 dollars, you have a credit utilization ratio fo 30 percent.

For your credit utilization to be considered good, it needs to be under 30 percent. To be considered great, it needs to be under 10 percent.

The more credit that you are using, the riskier you are to a lender. So, if your credit utilization was sitting at 20 percent and it increased to 40 percent, your score would certainly be reduced. A 20 to 25 point reduction is certainly possible.

The fix, to this drop would be to lower your revolving credit account balances. Try to get them under 30 percent for a good boost and under 10 percent for an even better one.

Your Credit Diversity Decreased

Creditors like to see that you can handle a variety of different kinds of credit. You need a mix of different accounts including revolving and installment accounts. If this diversity decreases, your score can go down, even if you are handling your other credit accounts responsibly.

A change in credit diversity is a very common cause of a decrease in credit scores. College graduates often are faced with this problem after paying off student loan debt. The proud and victorious feeling of paying off a huge debt is often countered by a big let down when they see their credit score dive 20 points in a few months. This is because their credit diversity decreased.

Fixing this problem would involve taking on another type of loan. This is not to say that you should take on debt in order to increase your credit score though. If you have a way to add a different type of credit account without affecting your debt however, you should do so.

One possible solution, if you already have credit card debt, is to take out an installment loan to pay it off. Your cards would get paid off which would bump your score and you would open another type of account which would boost your score. To top it off, you might lower the interest that you are paying on that revolving debt.

Your Credit Got Younger

Another little factor in your credit score that you might not be aware of is credit age and average age of credit. Creditors like to see a lengthy credit history so that you can demonstrate your responsibility over time.

If you have recently opened a new account, it could lower your average age of credit. In addition, if you closed one of your oldest accounts, it could have lowered both your credit age and average age.

The solution to this is two fold. First, you should never close your oldest accounts if it is not necessary. If it is a credit card with no annual fee, keep it open and use it once or twice a year to prevent the creditor from closing it. Should this card have an annual fee, call the issuer and ask to have it eliminated or waived.

If the problem is that you opened a new account, your best option is to just wait it out. Your credit will get better with time.

You Made A Late Payment

Usually a late payment would cause a more significant drop to a credit score but if your score was already a bit low, a 25 point drop is possible.

Making timely payments is one of the biggest factors affecting your credit score. It represents roughly one third of your number.

If you are unaware of a late payment, you should check your credit report and see if an error has been made, mistakes are made all of the time. If you find an error, dispute it with the credit bureaus, all three. They then have 30 days to investigate the matter.

What should you do if you did make a late payment though? For starters, you need to get caught up with the creditor. You can then ask them to remove the strike from your report. They usually will not but it is worth trying. Barring that, you just need to make payments on time going forward. Over time, the late payment will affect your score less.

A Number Of Factors Affected You

Since your credit score is the combination of factors, your decrease of 20 to 25 points could be from a variety of factors.

Perhaps your credit utilization went up a bit, you got a few inquiries on your report and you closed an old credit card. A few points here and a few points there can really add up in a hurry.

The only way to counter this type of decrease is to get a copy of your report or a credit summary from a place like Credit Sesame. Take a look at the overall picture and see how things have changed. You can then take the steps you need to change the credit score decrease trend.