Finding a way to raise your credit score may seem difficult, but there are several easy steps you can take to do just that.
1. Pay Off Collection Accounts (But Request that Collectors Cease Reporting)
When a payment is made on a collection account, it shows up on your credit report as “Paid Collection” and the date of last activity becomes more recent. Credit scoring software uses this date to determine your credit score, and a more recent date can lower your score. You can raise your credit score by contacting the collection agency and explaining that you will pay off your collection account if they agree to stop reporting it to all credit bureaus. Be sure to get their affirmation in hard copy. Not all collection agencies will agree to this arrangement, but erasing references to your collection accounts will boost your score.
2. Pay Off Past Due Accounts
Each unpaid account on your credit report includes a “Past Due” column. These past due accounts adversely affect your credit score, so if you see an amount in your column, pay the reported debt to raise your credit score.
3. Eliminate Charge offs and Liens
Because charge offs and liens older than 2 years hardly affect your credit score, paying off an older charge off or lien won’t hurt or help raise your credit score. Charge offs and liens accrued within the past 24 months do extreme damage to your credit score, so you should pay these past due amounts as soon as possible. In a situation where you have limited funds and both charge off and collection accounts, you should first pay your past due balances, and next pay the collection agencies that will remove references to credit agencies.
4. Eliminate Late Payments
Seek a little help from your creditors when it comes to late payments. You can request a “good faith adjustment” in which they’ll remove the late payments reflected on your credit report. Be calm but persistent, referencing your loyalty as a customer. If the representative won’t adjust your account, call back and try again later–since most creditors take calls at a call center, chances are you will speak with someone else at a later time and negotiate an agreement to help raise your credit score.
5. Be Aware of Credit Limits & Evenly Distribute Balances
Be sure that your creditors are reporting your credit limits to the three big bureaus. If your limit isn’t reported, the credit scoring software records your balance as “maxed out,” which hurts your credit score. Strive to get your balances as low as possible, and do not concentrate all of your balances on one card. If this proves difficult, use these guidelines to raise your credit score as much as you can:
Your credit score is affected in different ways when you carry card balances. Using 70% of your total credit limit on any card is most detrimental to your score. 50% is the next level, then 30%.
To get the best score without paying down your balances, disperse your balances across all of your accounts instead of burdening one card with a large balance.
6. Don’t Close out Credit Cards
It might seem like closing credit card accounts, especially ones you do not intend to use, will help you raise your credit score. But since your credit score is partially determined by your debt to available credit ratio, closing a card can actually lower your credit. When you close an account, you take away a portion of your available credit and your ratio is lowered. For instance, if you owe a total credit card debt of $15,000 and your total credit available is $30,000, you are using 50% of your total credit. If you close a credit card with a $5,000 credit limit, you will reduce your credit available to $25,000 and change your ratio to using 60% of your credit.
Closing out credit card accounts is only a good idea if the account was opened in the past two years or if you have over six credit cards. To raise your credit score, you should have between 3 and 5 credit card accounts. Having more will not do much damage to your credit score, but may prove difficult to manage. Certified Credit Experts recommends that you close your newest inactive accounts if you have more than six credit cards. If no accounts are under 2 years old, do not close any.
7. Open Business Credit Cards
Because business credit cards do not usually reflect on your personal credit report unless the business credit card is paid late, any debt incurred on the business cards does not hurt your personal score. Applying for business credit cards will help you build this segment of your credit and help you raise your credit score.
8. Keep Your Old Credit Cards Active
The age of your credit file determines 15% of your credit score, because credit scoring software assumes people who have had credit for longer time are less likely to default on payments. Even if your old credit cards have massive interest rates, shutting down those accounts will lessen the average length of time you have been extended credit. Keeping these old accounts active will raise your credit score. Along with keeping your accounts open, you should also keep your old credit cards active. Certified Credit Experts suggests that you use the old credit card once every six months to prevent the account rating from switching to “Inactive.” Credit reporting software ignores inactive accounts, so even if you have a positive payment history and low balance, you won’t reap these benefits. Just use the card to pay for groceries, gas, or a utility bill every few months, then pay the balance to avoid interest rates.
Understanding how to raise your credit score is key to obtaining lower interest rates and repairing your credit reputation, but sometimes you need professional expertise to fully repair your credit. Certified Credit Experts of Kansas City can help you interpret your credit profile and make the necessary changes to improve your credit score. For more help, call our Lee’s Summit or Leawood locations at (816) 875-9305 or (913) 971-0090.