It may just be three little numbers, but your credit score impacts nearly every aspect of your life, from your interest rates to how much you pay for insurance and in some cases, even your employment prospects.
If your credit score is not as high as you’d like, the following strategy can help you improve your score.
Knowing how your score is determined is the first step in getting back on track. You have a number of different credit scores, but many lenders use the FICO score. FICO calculates your score the following way:
Your strategy will depend on why exactly your score is low. The first thing you'll need to do is get a copy of your credit report. You can do this for free at annualcreditreport.com. There are three different credit reporting agencies--TransUnion, Equifax, and Experian. Make sure you get a copy of each. From there, look for anything that may be pulling your score down. This includes late payments, accounts in collections, maxed out credit cards, and judgments. If you haven't established a credit history yet, your credit score may be low even if you don't have any negative marks on it.
Each credit reporting agency has a process that allows you to dispute items on your credit report. If you see something you don't agree with, start the dispute process. You can do this online, or you can contact each credit reporting agency directly and speak with their customer service representatives. Disputing accounts in collections can be particularly helpful; if the collection agency can't or won't verify your debt within 30 days, by law it must be deleted from your credit report.
The longer your accounts are past due or in collections, the more it hurts your credit score. If you have accounts that are past due, bring them current as soon as possible to avoid them from being sent to a collection agency. If an account has already been sent to a collection agency, you have the right to receive proof in writing from them that the debt is yours before you make any payments. Send all communication to the collection agency via certified mail, and make copies of everything. If the accounts are in fact yours, then set up a payment plan or find out if you can negotiate to have the account paid off for a settled amount.
If your credit score is low because you don't have much of a credit history, start building one today. One way to do this is through a secured credit card. This type of card reports to credit agencies the same way a traditional credit card does, but it uses a cash deposit as your credit limit. Making purchases with your secured card and paying the balance off each month will not only help you build a credit history, but it will raise a low score as well. You can browse different types of secure credit cards using a credit card comparison tool.
If your score is low because of missed or late payments, you can help prevent future missed payments by setting up automatic payments on your accounts. Most creditors and banks offer this service for free, and it can make a huge difference in your credit score--just one late payment can drop your score over 50 points!
As you work on your strategy to improve your credit score, remember that in most cases, it won’t happen overnight. Be patient, pay down your credit card balances, and make sure your accounts stay current, and your score will improve over time.