6 Tips to Raise Your Credit Score

This post is in the: Credit and Credit Score category.

Your credit score, calculated from myriad of factors, tell your current and potential creditors how creditworthy you are as an individual or how much of a credit risk you pose. Having a credit score that is too low is the number one reason people don’t qualify for a mortgage. Put another way: most buyers would qualify to buy a home today if their score were higher!

It is good practice to keep a handle on your credit, both your overall score as well as the items that are reporting on it. As many as 70 percent of Americans have at least one MAJOR discrepancy on their credit that could prevent them from qualifying for a loan. Inquiring about your own credit has no effect on your score, so doing it often – at least monthly – is a great idea.

Now, on to the tips. Here are six tips that you can start implementing today to help raise your credit score on your own.

1. Pay on time. This may seem trivial but it is the single most important factor that can affect your credit. Even one late payment on a loan can drop your score as much as 30 points. That 30-point drop can be the difference between qualifying and not qualifying so treat it seriously.
2. Correct mistakes in your credit report. Those all-too-common mistakes mentioned above that affect as many as 70 percent of Americans can be easily fixed. If you notice a mistake on your report, you can dispute the inaccuracy directly on the bureaus websites (See Figure 1).
3. Detach yourself from the ‘wrong vendors’. Because finance companies lend to people with poorer credit, the score of a borrower owing money to a finance company can be lower than owing money to a bank or public institution. They can also be much more aggressive at reporting negatively.
4. Reduce balances to less than 50 percent on revolving credit. This one can take some time, and can have a huge impact on your overall score. If you can easily and quickly make a larger than normal payment on an account and reduce its balance to even 48 percent of your overall limit, your score will benefit.
5. Minimize the number of ‘hard inquiries’. Hard inquiries are requests for your score made from credit institutions, insurance companies, and other institutions that you have entrusted with your social security number. These types of inquiries should be kept to a minimum. Two exceptions: inquiries made for a home mortgage count as one inquiry if made within 30 days; inquiries made for an auto loan count as one inquiry if made within 7 days.
6. Pay off collection accounts. Paying off collection accounts may reduce your score in the short run as it brings the negative item ‘recent’. However, your score will rebound even more as the account starts to age again and its status is paid.