Although it can take years to erase major credit blunders—such as foreclosures or collections accounts—there are steps you can take to start improving your credit score. Since having good credit yields the ability to acquire home mortgage loans, bank loans, or business loans, taking these relatively simple steps to boost your credit score will immensely aid in your ability to acquire loans such as these.
Here are five ways you can improve your credit score:
1. Balance Transfer Credit Cards
If in a significant amount of credit card debt, or have multiple credit accounts with past due charges, consider consolidating your debt into one account via a balance transfer credit card. Balance transfer credit cards usually have a free transaction fee with a low-interest rate, which helps to alleviate your concern over your debt.
As Jeffrey Weber from SmartBalanceTransfers.com states, “Balance transfer credit cards are designed to ease the stress associated with debt because balance transfer credit cards consolidate debt into one payment on a low-interest card.”
When it comes to debt, it is the interest rates that can swiftly turn a small amount into an insurmountable amount. Anytime you can pay down your debt with a low interest rate, you are saving yourself money in the end.
2. Payoff Past Due Accounts
About one-third of your credit score comes from payment history. When you pay your balances on time, the better your credit score will be. Likewise, the later your payments are, the lower your credit score will be. In order to increase your credit score, look to pay off your past due accounts as soon as possible. The older the bill, the more negative impact it has on your credit account, so pay off the most past-due accounts first.
3. Good Faith Adjustments
If you have only missed on or two payments in your credit history, chances are it was an oversight or a one-time financial problem that has been settled. If this is the case, call your creditor and ask if they will remove the late payment from your credit report. Usually, if you have been faithful to making payments on time, creditors will be willing to make a courtesy adjustment.
4. Collection Accounts
Collection accounts, charge-offs, and liens can weigh heavily on your credit report. Charge-offs or liens that are older than 24 months will not boost your credit score immediately. Pay the most recent charge-offs or liens first, then gradually pay off the earlier charges.
When it comes to paying off collection accounts, be warned that your credit score can drop initially before the payment balances out. However, you can avoid this problem by asking the collector to erase the account from your file once they have reported your payment has been made.
5. Improve debt-to-credit ratio
The amounts owed are not necessarily about the dollar amount; it is about how much debt you have over your credited allowance. Some simple ways to improve your debt-to-credit ratio is to ask for a credit increase and pay down revolving debt first.