Credit Score: What’s Yours? Tips on How to Raise It

Like most young adults, I did not heed my grandparents’ warnings about being careful with my credit score.

When I turned 18, I took out a few credit cards, spent more than what I had, lost my job and had no way to pay off what I spent. I thought, “Hey! No big deal,” until I got older. Funny enough, my hubby also went through the same exact situation at 18.  Now with 3 kids, we realize how important your credit score is and how it affects you, from applying for a job to renting an apartment.

We both downloaded an app called Credit Karma to check out our credit scores. Being slightly competitive people, we decided to compete on who can repair their credit score on their own. Silly, I know, but it was awesome!

Here are some tips I used to raise my credit score:

1. Check your credit score.

You have the right by law to receive a free copy of your credit report once a year from all 3 credit agencies, Equifax, Experian, and Transunion. All you need is to go on to  AnnualCreditReport.com.

2. Verify your credit report for accuracy.

The most common areas for errors are:

• Incorrect personal information (ex. Misspellings or incorrect address)
• Incorrect payment history
• Incorrect public records (bankruptcies and foreclosures)
• Fraud

You should also keep an eye for:

• Missing accounts that should be there
• Accounts that don’t belong to you
• Inaccurate accounts
• Accounts closed by the grantor
• Duplicate accounts
• Data management errors
• Derogatory marks (delinquency)
• Incorrect hard inquiries

If you find any incorrect information then your next step is to dispute it. If the error is on more than one credit report, you need to report it to each of the credit reporting agencies that has the error.

3. Increase Credit Limits

Carefully asking for credit line increases help you raise your credit score by helping you with your credit utilization ratio. Your credit utilization ratio is your credit limit divided by your current credit used. The higher this number is, the higher the risk you are as a borrower. The lower the ratio is the lower the risk you are. It is good to keep this number under 30%, but even better if you can keep it under 10%.

4. Pay off late/past due accounts.

After you have verified that the derogatory marks on your credit report are your own, you should start paying them off. This will have a high impact on your credit score. These are those accounts that you fell behind on and have now been referred to a collection agency and are reflected in your credit report. The more accounts you have in collection, the more you look like a risk of defaulting on your loans and/or credit cards.

5. Paying off outstanding balances on time.

The keywords here are on time. This might not seem like a big deal as long as you pay them, but it makes up 35% of your credit score. A good way to avoid forgetting to pay a debt on time is by setting up the credit card or loan to be paid using autopay. You can set up auto-pay either through the credit card or loan agency or through your bank. If you are going to be late on your payment for some reason, you have 29 days to pay the account before it goes on your credit report.

6. Paying off your high interest or lowest balance accounts first.

When you first get a credit card the credit card issuer gives you an APR (annual percentage rate) which is what percentage of interest you will be paying. When you are first repairing your credit this will probably be a high percentage. As you go building your credit and showing you are no longer a risk the credit card issuers will lower your APR.

It is important to pay off your high APR credit cards first because if not this means you will be paying more than you need to because of the interest on the account. Another smart idea is to pay the accounts that have a low balance first because you can easily pay the balance in full and have that account stay at $0.

7. Open a new credit card and keep old credit cards open.

Credit Karma recommends you to have 11-20 open and healthy accounts on your credit report. It tells you that lenders like to see that you have used a variety of accounts responsibly.

When opening a credit card always look out for annual fees. Some credit cards have annual fees that go up to $500.

When you are first repairing your credit score, you might have to get a secured card. These cards are specifically for people who have previously damaged their credit scores. With these cards, you are asked to deposit money into the credit card. The amount of money you deposit is equal to your credit limit. The credit card issuer uses your deposit as collateral in case you do not pay the credit card.

Also, always keep old credit cards open. Even if they are at a $0 balance this will help you. This affects your utilization and shows a good credit history.

8. Rely on someone with a good credit score that you trust!

You need to be careful with this one. The more important part is finding someone with good credit that you absolutely trust. This person can add you as an authorized user on their accounts. They do not even have to give you access to their accounts. They just need to add your name.

As long as that person pays their bill on time, your credit score will be positively impacted. The problem is if they do not pay their bill on time, you are also responsible for the debt.

Things to look out for that will drop your credit score:

• Collections – This any debt you owe and are past due on. This includes parking tickets, utility bills, medical bills, bank overdraft fees, memberships, and rent. Also reflected under collections is delinquent child support.
• Hard Inquiries – Inquiries are when someone pulls your credit score to make a decision. There are 2 types of inquiries, but only hard inquiries are reflected on and lower your credit score. This usually happens when applying for a CD, a new cell phone plan, or an insurance plan. This can also happen when asking for a credit line increase with certain credit card issuers.
• Bankruptcy, Foreclosures, Repossession, and Tax Liens – Filing for bankruptcy can remain on your credit report for 7 -10 years. Foreclosure can remain on your credit report for 7 years. Repossessions can remain on your credit report for 7 years. Paid tax liens can remain on your credit report for 10 years, while unpaid tax liens can remain for 15 years.

If you do not want to or can’t do all this work on your own, you have another option.

You can also recruit the help of a credit repair agency. These companies charge a fee to address negative items from your credit report, on your behalf, with the credit bureaus.

These companies often review your credit report and set up a plan to argue with your creditors to remove negative items. This plan might include sending requests to validate information, letters to dispute inaccurate negative items, and cease and desist letters.

These companies can either charge you a flat fee, a monthly fee, or charge for each negative item.  The good part is that credit repair companies cannot request payment until they deliver on their promised results.

You need to weigh what your time is worth. You can do these same things on your own, but only you know if it is worth it.