6 Steps to Better Credit Scores

Whether you're improving your credit by enlisting the help of a professional or tackling the task on your own, here are six essential steps to follow on your journey to better credit.

ASSESSING YOUR CREDIT REPAIR SITUATION

To improve your credit score you need to get to know your credit score. Pull your credit report and take a detailed look. After a thorough read, break down the areas hurting your score into the following categories:

Need credit professional's attention.
Items I can dispute.
Negotiate with creditors for better terms.

BEWARE OF CREDIT MISCONCEPTIONS

Credit repair isn't lacking when it comes to misconceptions that may cause people to make mistakes or avoid acting altogether. Here are some of the most infamous:

Simply paying off your debt will fix your credit score.
All negative items on your report will be automatically removed after a certain period.
Working with a professional credit repair service is expensive or ineffective.

CALL IN THE PROS

Once you’ve identified the areas of your credit report that need improvement, consider working with a professional credit repair service, or loan officer who can use a predictive analysis tool to anticipate what your credit score will be if you take several proactive steps (e.g. pay down balances or take out new credit accounts).

AUTOMATION IS YOUR FRIEND

Payment history is a crucial component of a better credit score. It’s important to make sure all of your payments are made on time. Set up payment reminders or automatic payments through your credit card issuer, bank account, or other financial institutions.

Additionally, consider regular automated payments to a savings account. This can help ensure you have enough funds in the event of an emergency, and it can also help you to avoid late payments or other negative items on your credit report.

DO-IT-YOURSELF CREDIT REPAIR

Your credit utilization ratio is the amount of debt you have compared to your credit limit. It’s one of the most important factors in your credit score. A high credit utilization ratio can indicate to lenders that you’re a high-risk borrower. This can lead to higher interest rates and difficulty qualifying for new lines of credit.

To reduce your credit utilization ratio, make sure that you don’t spend more than 30% of your available credit at any given time. This means paying down balances on existing debt accounts, or avoiding opening new lines of credit unless necessary.

Another strategy is to keep track of all of your credit card balances and make a payment on each account every month, even if it’s just the minimum payment. This will help keep your credit utilization ratio low and show lenders that you’re actively working to pay down your debt and build better credit.

DIVERSIFY. DIVERSIFY. DIVERSIFY.

One of the best ways to improve your credit score is to diversify your credit mix. This means having a variety of credit accounts, like revolving lines of credit (i.e. credit cards) and installment loans (i.e. mortgages, car loans, student loans). A diversified credit mix indicates to lenders you’re a responsible borrower who can manage different types of financial obligations.

The truth is, there is no quick fix for bad credit. It takes time and effort to improve your credit score, but it is possible to do so through various strategies (outlined above) and being armed with the right information. Follow these steps and better credit can be in your future.