Your credit score is an indicator that banks and other lenders use to determine how likely you are to pay off any debts you have.
The higher your score, the more likely you are to repay what you borrow.
On the other hand, having a low credit score is a red flag to lenders, and they’ll probably be less likely to give you a loan or a credit card.
If you currently have a low credit score, it’s not the end of the world. You can improve your credit score if you are patient and disciplined about your finances.
However, there’s no one-size-fits-all solution to improving your credit score. Much of this depends on your current financial situation, your long-term goals and more.
For example, if you currently do not have any credit history, you will be required to build your credit from the ground up. This takes time.
Conversely, if your credit score is already low, you will need to repair your credit using a number of different methods ranging from paying off old debts to fixing mistakes on your credit report. Read more to learn the most effective methods on how to improve your credit score.
Learn About Credit Scores
Before you begin working towards improving your overall credit score, there are a few basics you should be aware of. Firstly, you need to come to terms with the fact that your credit score will not improve overnight.
In fact, many consumers with a low credit score require a long period of time, sometimes several months or years, in order to improve their credit. The length of time it takes to improve your credit score will also vary depending on the type of debt you have.
Another important thing to know is that not having any debt does not necessarily mean that you also have good credit. Since your credit score is calculated based on your individual credit history, there are various factors that go into calculating your score. For example, your credit score may also be affected by:
- Whether you pay your bills on time. If you are consistently late to pay your bills, this will have a negative effect on your overall credit score. This is true both in regard to credit card bills and utility bills you’re responsible for paying each month.
- How much available credit you use. If you have a credit card and pay it off each month, your score still might be lower than you’d expect. This happens if you have a high credit utilization rate, which means you routinely use a large portion of the credit that’s available to you.
- The amount of hard inquiries you’ve had into your account. Whenever you apply for a credit card, take out a loan or sign an apartment lease, the people you’re doing business with will need to look at your credit history. This shows up as a hard inquiry, which will temporary lower your credit score.
- How long you’ve had a line of credit. Credit scores are usually higher for people who have had a line of credit for a long time. If your oldest line of credit is only a year or so old, it’s likely to have a negative effect on your credit score.
How can I pay off my debt?
One of the most effective ways for people with low credit scores to improve their financial situations is to pay off any existing debt they have. This is a good strategy whether the individuals’ debt comes from:
- Credit cards.
- Unpaid medical bills.
- Student loans.
Paying off your debt might seem like a difficult task, but it’s more manageable once you have a plan. First, you need to make a budget you can stick to. Then, you need to adjust your monthly expenses so you can save enough to pay down any debt you have. You can also work to pay off your debt by:
- Speaking with a credit counselor who can help you budget your resources so you can pay off your debt as soon as possible.
- Making timely payments on all credit cards, loans and other credit payments. Ideally, you’d be able to pay more than the minimum payment each month.
- Keeping a higher percentage of available credit by paying and lowering debt.
- Keeping low balances on all of your credit cards.
- Paying off any bills or credit accounts that are past due.
How to Catch Costly Errors on Your Credit Report
Credit reporting agencies sometimes make mistakes on credit reports, which can cause borrowers to have a lower credit score than they should. These errors can arise from clerical mistakes, such as incorrectly inputting a date or Social Security Number (SSN) in a person’s records.
Furthermore, many people who notice errors in their credit reports usually find that these mistakes are simple to fix. Once you find an error, you can report it to the appropriate credit agencies. The Fair Credit Reporting Act (FCRA) ensures that credit agencies and organizations are responsible for correcting any erroneous information on a credit report. This also applies if you are the victim of identity fraud.
You can request one free credit report each year. This way, you can keep track of your financial standing and make sure your credit score accurately reflects your borrowing history. You can also request your credit report individually from each of the three credit bureaus.
Check Your Credit Report From These Bureaus
What if I do not have a credit score?
If you do not have any credit history, you won’t have a credit score. Therefore, you will need to begin building your credit before you can receive a credit report. There are many ways to start building your credit, but applying for a credit card is one of the most common ways.
If possible, those who are younger than 21 years of age should start building credit by having their parents or legal guardians cosign their credit card. Parents may also choose to list their children as authorized users on their cards. This way, the children can receive some of the benefits of their parents’ good credit history without needing to open their own credit card account.
Applicants who are older than 21 years of age may prefer to open up a “secured” credit card with their banks. Individuals who open secured credit cards are responsible for putting a down payment on their card. This amount becomes the user’s credit card limit. Since these cards pose little risk to the institutions that issue them, people with low credit scores or no credit history can usually obtain them.
How to Check Your Credit Report and Credit Score
Consumers who are looking to stay informed about their financial status are encouraged to perform a credit report check.
Many companies provide free credit reports, while other providers may perform the service for a small fee. Federal regulations dictate that certain companies offer consumers free credit reports every year. These credit reports can be requested from authorized companies by phone, mail and online depending on the company. According to federal regulations, consumers are eligible to request three free credit reports each year from different companies or all from one company. Consumers are required to pay additional fees for each report after the first three.
If you are looking to get a quick overview and evaluation of your financial history, you can request your credit score from a number of different companies. Depending on which company you request from, your credit score may vary. This is because some companies have incomplete reporting while others report different aspects of credit history. Generally, consumers who want the most accurate credit score should request their FICO score. In some cases, certain organizations and companies will offer free credit scores whereas others will request a payment. Banks and credit card providers can also provide you with a credit score check if you desire one.
Learn a Few Common Methods to Access Your Credit Report
You have the option to request a credit report check from a variety of different agencies, but there are three accredited credit reporting agencies that work specifically with the U.S. government. Citizens of the United States can access a free credit report once per year through any (or all) of the three major credit reporting agencies: Equifax, Experian and TransUnion. A good way to get a comprehensive overview of your credit history is to request a credit report from each of the agencies. This way, you can compare and contrast the various reports to get the most accurate view of your credit history. You are recommended to perform a credit report check once every year to keep track of any changes to your score.
Consumers can access each of the three accredited credit reporting agencies online, over the phone or by mail. On the application for a credit report check, consumers will need to provide essential identifying information such as their:
- Date of birth.
- Social Security Number.
- In some cases, more specific information can be requested such as:
- The amount of money a consumer is paying for car insurance.
- The date when a consumer took out a home loan or auto loan.
The additional identifying information can differ between each applicant and each credit reporting agency, but they are required to verify the information in order to prevent identity theft. You are the only person who is allowed to request your own credit history check unless you give permission to your creditors, employers or insurers.
Consumers also have the option to request a credit report check from third-party providers. Certain third-party providers can help you view your credit score while also providing additional information such as some credit cards you may be eligible for, tips for improving your credit and more. However, before selecting a third-party provider, consumers should check to verify that they are a legitimate organization.
It is imperative to check out third-party providers before you give them any sensitive information like your Social Security Number. In order to verify a third-party source, you can check with the Better Business Bureau to see if they are a respectable business. You can always check out a company’s reputation by checking reviews of their services online. After verifying that a business is safe and legitimate, you can request a credit history report from them.
Why is it important to check your credit score often?
It is vital that consumers perform a credit score check at least once per year because staying up-to-date with their credit report can help them stay in a positive financial standing. Consumers all across the country use their credit in order to make significant purchases like property and automobiles. This makes it incredibly important to earn a good credit score and work to maintain it by making payments on time. Unfortunately, a poor credit score can prevent consumers from having access to the loans and lines of credit they need to make these purchases.
If you are looking to make these types of purchases in your life, it is essential that you familiarize yourself with your credit history before you attempt to open a loan. Requesting your credit report can give you specific details about your personal credit history which can help you stay on top of your finances. You will be able to see any previous loans you have taken out, including those that have outstanding payments and those that are closed. By viewing your credit history, you can check to ensure that there are not any mistakes or fraudulent issues with your credit. Errors in a credit history and fraudulent claims can cause your credit score to be negatively impacted.
Learn About Credit Report Denials
In some circumstances, your request for a free credit report may be denied by a credit reporting agency. If this occurs, you should contact the reporting agency to find out why your request was rejected so that you can begin to resolve the issue. By calling the agency, they can also inform you on what steps you should take next. In many cases, requests for a free credit report are denied because there is missing or incorrect information on the application. Situations like this can be easily fixed by contacting a credit reporting agency directly.
After you have provided the agency with the correct information, the issue should be resolved and you will be able to access your free credit history report. However, if your request is denied again you are recommended to contact the Consumer Financial Protection Bureau (CFPB). Typically in these cases, credit report requests are denied due to fraudulent activity. By calling the CFPB you can work to resolve these issues.