5 Tips to Improve Your Credit Score

I remember years ago hearing a speaker talk about how credit scores are calculated.  I never forgot this valuable information and, to this day, use that knowledge in talking to my home buyers.  Improving your credit score is not an overnight process but once started it can really give you a sense of accomplishment.  One thing to note is that improving your credit score may help in getting you better mortgage terms as well as other credit options.  Here are some tips:

Managing Your FICO® Scores from FICO B2C Scores on Vimeo.

Check Your Credit Report and Score

You have the right to order a free annual credit report from each of the three credit bureaus: TransUnion, Equifax and Experian.  You can check online or have the report mailed to you.  Your credit score will be a separate charge but it’s a reasonable amount.
Check your report for any errors, late payments incorrectly listed, accounts that you don’t recognize and amounts that are wrong. If you see any errors, you can dispute these errors to the credit bureaus.

If you are seeing accounts that you don’t recognize, this may be an indication of identity theft.  Just a note — if you have children who are minors or young adults, order a copy of their credit report. Identity theft is a big problem against children, click here for article.  Make sure that no one is using your child’s social security number to set up loans or credit accounts.  This can cause problems for them later.

Set Up Payment Reminders

In order to stay current with your payments, it may help to set up payment reminders.  You can set up these reminders through your online banking portal or put recurring reminders on your smart phone calendar.  Of course, an “old school” paper calendar can also work.  Some people also  find it helpful to choose one or two days a month to pay all bills — maybe the 1st and the 15th.  Choose what works best for you.

Reduce the Amount You Owe

In order to make this work, you may want to stop using your credit cards for a period of time.  Make a list of all your credit accounts (use your credit report).  Check the recent statements to determine how much you owe, the minimum payment amounts and the interest rates for each account.  Come up with a payment plan for attacking your debt. Some suggest paying off the card with the highest interest rate. I personally like the approach of starting with card that has the lowest balance. Pay it off and then apply those payments to the next lowest balance. This approach gives you a quicker “knock-out” and sense of satisfaction.  Choose the method that works for you.

Re-Establish Your Credit History

If you have had past problems with your credit payment history, you may need to establish new patterns.  If you are planning to apply for a mortgage loan, you will generally need at least two active lines of credit. These lines of credit can include a car loan, student loan, credit cards, etc. If you don’t currently have any lines of credit, you have to set up a credit account to improve your credit score.  Note — In order to improve your credit score, you need new patterns of good payment patterns to replace the old history.

A secured credit card is a great option to get started if you don’t have a existing credit card account.  There are a lot of banks that offer these secured credit accounts.  Just Google “secured credit cards”.  You will need to deposit an amount that will act as security for your credit usage.  You can deposit as little as $200-300.  Account activity will be reported to the three bureaus and you should within a few months start to see an improvement in your score (as long as payments are timely).


Keep Your Balances Low

Even if you are making your payments on time, your credit score may be negatively impacted if your credit balances are maxed out. Credit utilization is another big factor in the calculation of your score. It is suggested that you should aim for balances to be no more than 35% of credit available.  For this reason, keeping accounts open after they are paid off can help with your score.

Getting and maintaining a good credit score is totally achievable.  Your credit score impacts more than just the mortgage of your home. Potential employers, insurance companies and others all factor your credit score in making decisions.  Educate yourself and implement your plan for improvement.

Finally, consider setting up a budget to manage your household’s finances.  This will help you manage your money rather than just spend it.  You can use software like Quicken or mint.com for tools to help.

Millie C. Lumpkin, Broker