If your credit score isn’t exactly stellar, don’t fret. There are things you can do to increase your score so that you can experience the financial freedom that you deserve.
Obtain Your Credit Report
1. The very first thing anyone who is interested in home buying or refinancing should do is to obtain a copy of their credit reports. There are three companies that keep track of your credit: Equifax, TransUnion, and Experian. All Americans are allowed one free credit report per year from each company, so be sure to check your report annually and look it over for accuracy.
Analyze Your Report
2. Go over each credit report and verify that all reporting accounts are accurate. Look closely for accounts that could be reporting incorrectly or aren’t even yours to begin with. Not all reports will contain exactly the same information, so read each carefully. Take note of any credit item you feel should not be on the report and file a dispute with the company displaying the item on their report. You should file disputes in writing, if possible. If the company agrees that the account is not yours, the account will be removed and your credit score should increase.
Obtain New Credit
3. Open a new credit card account, charge several small purchases to it each month, and be sure to pay it off each time the statement arrives. A solid history of paid-down credit accounts will have a positive impact on your credit score, and charging only small purchases will keep your utilization ratio—or the amount of debt you carry versus the amount of the credit line—low will also be shown in a score increase.
Use Cash Sometimes
4. Don’t use your credit card too much. Be sure to use it only for a few purchases a month when your credit score is low, and as stated in #3, pay it off at the end of the month. When you constantly run your credit cards up close to their limits, creditors will take notice that you might be overspending. Use your card more sparingly to show creditors that you are responsible with your finances.
Don’t be Tempted to Cancel Unused Accounts
5. Believe it or not, canceling credit cards can have a negative effect on your credit score. Many people think canceling a card will improve a credit score, but it actually does the opposite. Leave even your unused accounts open to increase the odds that your score will increase.
Pay off Old Debts
6. If you find unpaid accounts on your credit report, call the creditor or collection agency and make payment arrangements. Most companies are more than happy to work with you to find a payment plan that works for you, and ignoring collection calls is the worst thing you can do for your credit score. Creditors would rather receive partial payment on a charged off account than no payment at all, so tell them what you can afford and then stick with it through the payment plan. Once those old debts show as paid or current on your credit report, your score will increase.
Negotiate with Creditors
7. As with #6, call your creditors and make payments arrangements. However, take this action a step further by offering to pay only if they’ll remove the entry from your credit report. Most creditors will agree to this. Ask them to send you a written agreement so you have proof that they will remove paid off entries once your payment arrangement is satisfied. This will have a great and positive impact on your score.
Be Your Own Watchdog
8. Carefully monitor your online shopping and practice caution when using credit cards at the point of sale. This can help to protect your growing credit score from crooks who may steal your credit card information and then ring up huge bills without paying them off.
Let the Pros Help
9. In some cases, it may be worth it to hire a professional service who can help you get your credit on track. If you have tens of thousands in unpaid debts and simply do not make enough money to pay them off, a professional credit counselor may be able to help you. They will work with your creditors and come up with a plan that will fit your budget and situation, resulting in a higher credit score.
As a Last Resort, Consider Bankruptcy
10. Bankruptcy will eliminate the possibility of you buying a home or obtain credit for several years, but it can help you to start over again if you are in a hopeless financial situation. It can legally wipe out some or all of your debts and help you restore some level of normalcy to your life. However, it should be reserved only for dire situations and should be used only as a last resort. Before your consider bankruptcy, it might be a good idea to contact a credit counselor first to see if you might have other options.