It is actually quite easy to improve credit score fast yourself without hiring credit repair services. If you have a high score, banks and lenders will offer you cheaper loan rates and even zero percent car loans, as well as the best 5% cash back reward credit cards. If your score is currently less than 600, you probably will not even be able to get loans easily from big banks and must resort to bad credit offers and these costs more with higher interest rates.
Although there are more than 20 million consumers with bad FICO scores under 600 in the United States, not many know what are the best ways to raise credit scores themselves. Some continue to live with expensive interest rates, while others end up paying a lot of money to credit repair scams that did not help them improve their creditworthiness at all.
Here are 5 simple tips you can use to raise FICO score legally.
1. Get Your Annual Free Credit Reports
Firstly, you need to know your current financial standing and that is by getting a free copy of your credit report that is maintained at the nationwide credit bureaus – Experian, Trans Union and Equifax. The thing is, sometimes your credit history contains incorrect entries due to accounting error or human error or even identity theft, so you need to check if all the recorded information is correct in the first place. For example, you may have paid off a 500 dollar online loan, but it continues to show up in your records. You can then contact the relevant agency immediately to dispute any incorrect entries and if your claim is valid, they will remove it within 14 days such that your FICO score will be improved quickly.
When lenders evaluate your loan request, they will get your credit info from the major bureaus in order to compute your tri-merge credit score. This is why you need to grab a copy of your free credit history from all three of them. Each copy will be slightly different depending on how your existing lenders send in reports on your loan repayment activities. Due to the update activities, sometimes an error will only appear in your history tracked at a particular agency and not at the other two.
2. Pay Your Bills On Time
If you have removed all the outdated or invalid information from your credit profile, it is time to plan your loan repayment schedule. Unless you pay your loan installments on time, negative remarks will continue to appear on your credit report and hurt your score. Furthermore, your payment history accounts for maybe 35% of your overall FICO score and your most recent payment history is more important compared to how you pay your loans in the past. For example, if you miss a credit card payment last month, your score can be affected by minus 50 to 100 points and that separates you between prime and sub prime borrowing rates of 5% or more. If you are unable to pay your bills on time, the best way to start rebuilding your rating and raise FICO score quickly for you is to negotiate for smaller monthly payments with your creditors.
3. Avoid Using Your Credit Card Excessively
Banks and credit card issuers will report the total balance outstanding and newly charged on your account to the tracking bureaus every month. That means that even you if you pay off any newly charged expenses immediately, it still ends up on your credit profile. This usually does not matter except when you already have a big unpaid balance that is accruing interest every month. When you charge additional expenses on this account, you approaches your card spending limit and this can hurt your FICO score. By using your credit less often, you can avoid hurting your credit score and keep a nice limit room on your accounts while gradually paying off your outstanding card balances.
4. Keep Established Old Credit Accounts
This can get confusing because people were often recommended to close unused accounts in order to raise credit scores. This method is only partly explained in that sense, because you should be closing new credit accounts with very little activities while retaining your oldest account that demonstrated your paying history for large purchases such as mortgage or car loans. According to the latest FICO scoring computation, closing your old or paid off accounts lowers the total credit available to you and your time-averaged outstanding balances you have suddenly take on a larger weightage because information from your closed accounts are removed from the calculations. Closing your old credit accounts also shorten the overall length of your personal borrowing history and some lenders look upon this as no proper credit establishment. Using an established credit card to rebuild your FICO score.
Unless you have an credit identity theft problem with an old established account, continue to use it and close off other unused new accounts instead. This will help raise FICO score easily for you without you doing anything.
5. Stay Out Of Bankruptcy
Finally, try your best to avoid filing for bankruptcy and facing home foreclosure because these will completely destroy your credit score for a long time. A bankruptcy on your credit report will not be removed for probably the next 10 years and this alone deducts 200 points or more from your score. As you can see, other remediative steps you take will not help much with a bankruptcy record on your profile. While having a sub-500 credit score means you only qualify for a small 300 cash advance, a bankruptcy on your profile means straight rejection from most lenders and banks. Even after you are completely discharged from your bankruptcy, high risk lenders will continue to charge high interest rate payments on your financing for many years.
It is better to pay or get non profit credit counseling to help you manage your loans and card bills such that you avoid bankruptcy at all costs. By choosing debt counseling instead of declaring bankruptcy, you will not have to suffer from bad credit history for a long time and can start to re-establish and raise credit score for cheaper loans within a much shorter recovery period of time. For more tips, check out https://www.consumer.ftc.gov/articles/0155-free-credit-reports