Your credit score depicts your creditworthiness to lenders, landlords, and sometimes, employers. It’s safe to say it heavily impacts your financial life. Hence, keeping it in tip-top shape makes it easier to qualify for loans, earn lower interest rates, and get better chances of approval for rent or employment. However, various reasons may lead to a dip in your credit score, ranging from late payments to bankruptcy filings. The good news is that you can make a comeback with effective strategies. This comprehensive guide provides you with the right insights and steps to revitalize your credit score.
Understanding Your Credit Score
Your credit score is a numerical expression calculated using the information in your credit report. Several models may be used to calculate your credit score, with the most common being FICO and VantageScore.
FICO Scores range from 300 to 850, with a higher score indicating lower credit risk. Five major factors affect your FICO score. These are payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and credit mix (10%).
VantageScore, on the other hand, also ranges from 300 to 850, with similar weight given to factors such as payment history, age and type of credit, percent of credit limit used, total balances and debt, recent credit behaviors, and available credit.
Analyzing Your Credit Report
Before starting the process of revitalizing your credit score, obtain a copy of your credit report from each of the three major credit reporting bureaus; Experian, TransUnion, and Equifax. Due to the Fair Credit Reporting Act, you are allowed free access to each of your credit reports once a year. Review these reports carefully and note all negative items impacting your credit.
Disputing Errors on Your Credit Report
About 20% of Americans have at least one error on their credit reports. If you find any errors, inaccuracies, or outdated items, dispute them immediately. Write to the credit reporting agency and the organization behind the error, providing supporting documentation. If the dispute goes in your favor, these mistakes will be removed, creating potential credit score improvement.
Paying Your Bills On Time
Perhaps the most crucial aspect of credit revitalization involves improving your payment history. Since 35% of your FICO score is based on your payment history, it’s essential to start paying all of your bills on time. Set reminders or enable auto-pay to avoid late payments as recurring tardiness will damage your credit score.
Decreasing Credit Utilization
Lowering your Credit Utilization Rate (CUR) can also significantly boost your credit score. Your CUR is the percentage of your total available credit that you’re currently using. Experts recommend maintaining a CUR below 30%.
Building a Long Credit History
A lengthier credit history generally increases your credit score. Keeping old accounts open, even if you don’t use them, can positively impact your credit standing as they lengthen your established credit history and lower your credit utilization ratio.
Seeking Professional Help
If revitalizing your credit score becomes overwhelming, remember that professional help is always available. Credit repair companies can help counsel and guide you through the process, ensuring you make strides in the right direction.
Conclusion
Revitalizing your credit score may seem overwhelming initially, but with patience, discipline, and the right strategies, you will gradually improve your creditworthiness. Understanding your credit report, disputing errors, paying bills on time, decreasing your CUR, and seeking professional help if needed are all effective strategies in enhancing your credit score.
FAQs
1. How long does negative information stay on my credit report?
Negative information, such as late payments or bankruptcies, usually stay on your credit report for 7-10 years but the impact on your credit score diminishes over time.
2. Can I pay someone to improve my credit score?
While there are legitimate credit counseling and repair services, no one can legally remove accurate and timely negative information from a credit report. It’s crucial to remember that rebuilding credit is a process that takes time.
3. Can checking my credit score too often impact it negatively?
No. Regularly checking your credit score is considered a soft inquiry and doesn’t impact your credit score.
4. Does closing a credit card account help improve my credit score?
Not necessarily. Closing old or unused accounts can potentially shorten your credit history and increase your credit utilization ratio, which can negatively impact your credit score.
5. How frequently is my credit score updated?
Typically, lenders report information to the credit bureaus every 30 to 45 days, meaning your credit score can be updated as often as that if any changes occur in the information. However, the exact frequency can vary.
