There’s no arguing that a solid credit score is a powerful financial asset. It helps you get lower interest rates on everything from credit cards to home loans. If you have a low credit score, you could be paying for it, quite literally. However, if you don’t know what your credit score is, it’s impossible to fix it or even know if it’s been damaged.
1. Monitoring Your Credit Score
So, first things first: check your credit score. Once a year you can get your complete credit report for free online. But your credit can change throughout the year. So it’s best if you check more frequently. You can do this by paying a marginal fee to the credit reporting agencies like Equifax (each agency has a separate score), or you can monitor your score for free from a web site like Credit Sesame, which provides you with your free Experian credit score, refreshed every month so that you see mistakes right away rather than when you’re attempting to get a loan.
2. Report Errors
By checking your score every month you’ll know when and if your score changes. If your score goes down and you’ve been paying your bills on time, then it’s time to pull a report. When looking over your credit report check to see if there are any errors. If there are mistakes make sure to send a letter to the credit bureaus to clear things up.
A 2004 study by U.S. PIRG found that 79 percent of credit reports contained a mistake, and 25% of all reports surveyed had errors that could lead to the denial of credit or a favorable loan rate. Common mistakes found include misspelled personal demographic information and listing the same mortgage or loan twice.
3. Keep Account Balances Low
Be wary if you use your card (or cards) to the point where you’re getting close to your limit every month. Even if you pay your bill off in full, this kind of usage can ding your credit score. Typically, you should keep your monthly balance at about 30 percent of your credit limit. This debt-to-limit ratio is important in your overall picture, not just on one card. Your total debt should only represent 30 percent of your total credit. If you are seeing higher balances on a card, try a mid-month payoff to keep the balance artificially low. Sometimes this can seem like a game, but you want it to be you who wins.
4. Build New Credit
When rebuilding your credit, it can be helpful to take small steps. For example, try getting a credit card with a low limit, one that you know that you can pay in full every month. Or, take something that you normally pay cash for, such as gas, and try to obtain a store credit card. Paying your bill in full and on time every month will, over time, lift your score and more than outweigh any hit on your score from opening a new line of credit.
While there are quick fixes to bump up your credit score fast, nothing beats the turtle method of paying on time each month without fail, opening new credit only when you need it, and keeping your balances low, within 30 percent of your credit limit.
Credit Sesame helps people manage their credit, debt and loans- all in one place. It gives you a complete picture of all your debt and analyzes your entire debt situation to find better savings options for which you are actually prequalified. Plus, Credit Sesame gives you your free Experian credit score, refreshed every month, so you always know how lenders see you! It’s 100% free to sign up and start tracking your credit and debt every month.