Having a low credit score can impact your life in many different ways. Your creditworthiness, or lack thereof, can prevent you from owning your own home, buying a new car, having access to credit, and can even jeopardize your career opportunities. Thankfully, there are several ways to raise a credit score. Even scores below 500 can be salvaged, so if you aren’t credit worthy at the moment, don’t fret, there are ways to improve your creditworthiness and get you back in the good graces of lenders.
1) Get a Secured Credit Card
You might be thinking that opening a credit card account with a poor credit score is impossible, but some banks specialize in dealing with individuals trying to rebuild their credit. A secured credit card through your bank or one of major top-tier lenders is a good place to start. With a secured card, you’ll be asked to put down a deposit on the card. Your credit limit will be based on the deposit you’ve submitted. So, if you’ve put down a deposit of $300, the limit on the card will be $300. Some cards will offer a program to switch you over to a traditional credit account after a series of on-time payments, and your deposit will be used towards your balance. But remember to carefully read the terms of any card you’re considering, secured or not, before you commit to anything.
2) Deal with any Negatives on Your Account
While there are a variety of reasons for a low credit score, one of the most common issues that people face is negative marks on their credit report. If you have loans in default you might want to consider contacting the credit issuer, or the company who currently owns the account, and then discuss your options. Bringing your payments and accounts back to current can help raise your score, or prevent it from sinking any lower. So if you can, get current and stay current on your accounts. Dealing with these issues first can help any positive changes you make to have a larger impact on your overall score.
3) Pay Down Your Debt
High credit utilization can sink your score quickly. Financial experts suggest paying down your existing debt, and paying off credit cards in full each month, if possible. By paying down existing debt on loans, and paying off revolving credit each month, you’ll keep your credit utilization low, thus raising your score. Some experts suggest aiming for a credit utilization of below 30%. If for example, you have $10,000 in credit available, you should be utilizing no more than $3,000 of it.
4) Don’t Close Credit Cards
If you have unused cards, some financial experts might not necessarily advise to close the accounts because the length of your credit history is a factor in your credit score. Your credit history depends on the length of your oldest account. If you have credit cards that are in good standing, but you are not actively using them, it might be worth keeping them open and somewhat active. This can also help your credit utilization, adding to your overall available credit. But just be aware that this is a short-term strategy that might help improve your score. As your credit score increases, you can slowly start closing accounts you are no longer using, but according to some insiders the oldest account should stay active.
5) Don’t Apply for Too Many New Accounts
While you’ll need available credit to improve your score, it’s best to avoid applying for a ton of new credit cards or loans. Every time your credit history is accessed by a lender as a “hard” inquiry your credit score will dip. Many inquiries at once can have a negative impact on your credit score and counterproductive to your goal. Experts suggest dealing with your current accounts. Even once your score begins to rise, you should avoid rampant applications. Creditors will see the number of inquiries you’ve submitted, and it can count against you when applying for larger purchases, like a car loan or mortgage.
6) Keep An Eye on Your Report for Incorrect Info
Credit reporting agencies are not infallible. You should monitor your credit history regularly to make sure you are not being penalized for accounts that don’t belong to you. You are entitled to one free credit report each year. If you see any accounts or information that is not correct, contact the credit reporting agency that has the discrepancy and work to have it removed. The process can be time-consuming, but it’s a fairly straightforward fix that can revive a flailing credit score.
Source: Paulette Thompson, Credit Canada: Six Ways to Raise a Credit Score