Repairing your credit is no short-term task. There is no quick fix — your score reflects years of financial behavior. To make real, positive progress, you must replace this old behavior with new and improved behavior. The best thing you can do is manage credit responsibly over time and follow these simple tips.
- Pull Your Current Credit Score There are a number of services now available that allow you to do a soft pull of your credit score for free. Accessing these details will help you understand where you stand and provide you with the data that informs the score.
- Make Sure Your Report is Accurate It is not uncommon for people to find inaccuracies on their report. If you find mistakes, these can be queried and reported to the credit bureau for removal. Since righting these wrongs often takes time, a thorough review of your credit report is recommended as soon as you receive it. Make sure you recognize all of the accounts listed and that the amounts owed are correct. It is also important to look for any late payments incorrectly noted.
- Get Current, Stay Current Pay off balances that are past due first and stay ahead of payments to come. This does not mean moving debt around. It means doing the hard work to actually pay it off. Note that any overdue payments or accounts in collections will still remain on your report even when current. The faster you can get there, the better. If you cannot afford to make the outstanding payments in the short term, call you creditor to inquire about payment flexibility. Do your best to prevent being sent to collections.
- Set up Payment Reminders or Automate it All Together Once you are all paid up and current, you want to stay there. If you know you can cover your monthly payments, automate them. This is a preventative measure to help keep yourself on track. This step takes the thinking out of making payments, guarantees you are never late and sometimes, creditors will give you interest rate discounts as a result of having the automated payments set up. If you are less comfortable with your ability to cover bills either because your income varies or because of the amount or number of bills you are responsible for varies, set up payment reminders. This allows you to actively manage your funds when it is time to pay a bill.
- Don’t Close Old Accounts in Good Standing Old accounts in good standing, even if they have a zero balance, are worth keeping. They help ensure the longevity of your credit history and serve as an example of your great past credit behavior. Closing these accounts will only minimize the positive points you have earned.
- Don’t Open New Credit Accounts to Increase Your Score Opening new credit accounts to build credit, can often backfire. Most creditors do “hard” credit pulls, which are recorded as part of your score. Many of these, in a short period of time, will result in the lowering of your score. It is especially important if you have been managing credit for only a short period not to open too many new accounts quickly.
- Make a Conscious Effort to Bring Down Your Credit Utilization Ratio The magic ratio here is 30 percent. If you have more than 30 percent of your credit card limits outstanding, it is highly likely your score is suffering. In this scenario, your credit score is impacted even if you are paying your minimums or even paying off full balances by the due date. Keep an eye on your numbers and if you can afford it, prepay some of your balances to get below the 30 percent marker.
- Create a Budget Don’t go overboard. Honestly assess your spending so you can make reasonable cuts you can stick to. Over-cutting initially will just make a budget harder to follow through in the long run. Be reasonable! Make sure the extra cash you set aside is being used the right way and pay your most expensive debts off first. This will save you the most over time and shorten up the time required to get debt free.
Remember, this process takes time. Yes, you can take the short-term actions to make sure your report is accurate but raising your number from there will take consistent good credit behavior. It is a long road, but it pays off when you see your number start to rise. With your new number in tow, the next time you apply for an apartment, mortgage or car loan, get ready to reap the benefits of higher approval rates and better interest rates, as well.
Nicole Reyes is the Co-Founder and Head of Product and Strategy at Grand, a company dedicated to creating a community of a million savers and helping people live better lives through sound financial decisions.