Repairing your Credit Score
Your credit score is an indicator to lenders as to how reliable you are at paying off debt.
First, it’s best to understand what goes into your credit score.
Payment History – About 35% of your credit score
- If you consistently pay your debts on time each billing cycle, this portion of the score will be in great shape
- If you have missed payments, delinquencies, or collections after you, the score will suffer
Amounts Owed – About 30% of your credit score
- This part of your credit score measures how much credit is being used compared to the available credit line
- If you use 30% or less of your available credit, the better your score will be
Length of Credit History – About 15% of your credit score
- Creditors want to see a long history of on time payments
- Don’t close accounts unless you absolutely need to
New Credit – About 10% of your credit score
- If you apply for credit frequently, it might display high financial pressure which could cause lenders to be wary
- Every time you apply for credit, your score will get hit a few points
Types of Credit Use – About 10% of your credit score
- Lenders want to see that you have a variety of credit
- If you don’t have many credit cards, apply for one. If you don’t have any loans, safely apply for one.
Now that you understand what a credit score consists of, here’s how to know your credit standing.
- If your score is 800+, you have exceptional credit
- If your score is 740-799, you have very good credit
- If your score is 670-739, you have good credit
- If your score is 580-669, you have fair credit
- If your score is below 579, you have very poor credit
Now that you know your credit standing, there are some ways to improve your score.
- Review your credit reports consistently
- Review them carefully. Use a service such as Mint or Credit Karma to get updates on your credit. Note any discrepancies and resolve them.
- Dispute any incorrect payment entries
- Sometimes lenders will incorrectly record the date of payment, which will put a demerit on your credit history. You should absolutely dispute any errors. Provide proof of documentation.
- Ask kindly
- If there is a derogatory mark on your credit report, call whomever issued it. If it is paid off, kindly ask them to remove it. The worst they can say is “no”.
- Increase credit limits on existing credit cards
- Call your credit card company and ask them nicely for an increase on your credit line. An increased credit line will reduce your credit usage. That in turn should increase your score.
- Open another credit card account
- Similar to the above point, if you have more available credit, it will have a positive effect on your credit score. It is best to go with a card with no annual fee.
- Pay off debt as quickly as possible
- The credit score ultimately measures how trustworthy you are on paying off debt. The best way to boost your score is to simply pay off debt.
- Use a company that specializes in boosting credit
- Sometimes, your own organic efforts won’t be enough to boost your credit score significantly. Consider going to a professional to help boost your score.