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How to Improve Your Credit Score

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How to Improve Your Credit Score

Your credit score is everywhere. It’s used to approve you for a credit card, a car loan, a mortgage and many other types of financing. Your car insurance and home insurance bills can be lower with a better credit score. Even a cellphone contract’s terms, your utility deposit or the amount of money you have to give your landlord upfront as a security deposit can all come down to that number.

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A poor credit score can be downright expensive — potentially tens of thousands of dollars over the course of a lifetime. (We even made a calculator so you can see just how much you’re losing to bad credit.) It can also become a source of serious stress, making you feel like you just can’t leave the mistakes of the past behind and move on. But, luckily, you’re not alone. Plenty of people struggle to improve their credit scores and there are a lot of things you can do to build good credit — and reap the rewards that come along with a good credit score.

Here’s where to start on your road to better credit.

1. Check Your Credit Reports for Accuracy

It’s hard to see an F on your report card. It’s even worse to see an F when you know you really deserved an A. That’s exactly what it feels like to find out you have a bad credit score, but know you’ve been paying your bills on time.

Each of us has three credit reports — one from each of the three major credit bureaus: Experian, Equifax and TransUnion. Credit reports can and very often do have mistakes on them. A 2012 study from the Federal Trade Commission found that 1 in 5 consumers had an error on at least one of their credit reports. Since your credit scores are based on the data in your credit reports, it’s incredibly important to make sure all of that information is accurate. If you have a mistake on your credit report, your credit score will reflect that mistake. It’s easy to check your credit reports from each of the three major credit reporting agencies. You’re entitled to a free copy once a year of all three of your credit reports under the Fair Credit Reporting Act. These reports can be accessed via, the government-mandated site run by the major bureaus.

Once you have your credit reports in hand, take a close look each of them. They will all look a little bit different, but the essential information should all be there. Here’s a quick checklist to help you spot potential credit report errors:

  • Is all of of your personal information accurate? (That can include your Social Security number, birth date, full name and address.)
  • Are all of your credit accounts being reported?
  • Are there any late or missed payments you remember making on time?
  • Are there any accounts or applications for credit you don’t recognize?
  • Are there any items from decades ago still appearing on your report?

It helps to go through your credit reports with a highlighter and pick out any and all inconsistencies. Keep in mind that a credit report from one bureau may have an error while another may not. That’s why it’s so important to check all three of your credit reports for inaccuracies. You may find none, a few or perhaps many errors on your reports. That’s where the next step to improving your credit comes in.

2. Find Out Why Your Credit Score Is Low

Simply having an error on your credit report doesn’t necessarily mean it’s causing your bad credit. For example, if a misspelled version of your name appears in the personal information section of your credit report, that likely isn’t causing an error in your credit score.

Other errors, like those listed in the previous section, could be to blame — and there are a number of possible reasons why those errors are there. Here are a few examples:

  • Your identity has been stolen and a thief is abusing your credit.
  • A collection account from years ago is still being reported, even though it’s past the statute of limitations in your state.
  • A bill your ex was supposed to pay (per your divorce) has gone unpaid for a while and now you’re suffering the consequences.
  • You defaulted on one loan and now it’s showing up as multiple defaults on your credit report because it’s been sold to debt collectors.
  • Your credit information has been mixed with someone else who has a similar name (and went through a foreclosure recently).

If your credit report is accurate, but you still have a bad credit score, it’s important to understand why. Here are the major credit scoring factors and how each one can impact your credit score:

  • Payment History: If you have a history of making late payments, creditors see you as a bigger risk and this is the biggest factor in what could be causing your bad credit score.
  • Amount of Debt: If you currently have five maxed out credit cards, creditors are worried about whether you’ll be able to take on more credit (and whether they’ll get paid back first or if your other creditors will).
  • Age of Accounts: If you’re newer to credit and borrowing, there isn’t a whole lot of data to go off of. You may need time to see your credit score improve.
  • Account Mix: Lenders want to make sure you can handle different types of credit like credit cards and auto loans, for example. If you only have credit cards, this may be keeping your score from rising.
  • History of Credit Applications: If you applied for a dozen new credit cards this month, creditors wonder why. They may be worried you’re overextended financially.

3. Create a Plan to Improve Your Credit Score

If your credit report information is accurate, but you know what you did wrong and want to work to improve it, you can make an action plan using your free account, and see how that plan impacts your credit scores over time. You can even get tips on what your problem areas may be.

If an error is causing your credit score problems, you can dispute it with each of the major credit reporting agencies. You’ll have to file a separate dispute for each error with each bureau individually, even if the error appears on all three credit reports. Here, you need to make a case for yourself and why this information is inaccurate.

This process may or may not produce the desired results, however. For example, identity theft victims may have a hard time proving they didn’t apply for a car loan in their name precisely because they’re having trouble proving that they are who they say they are. The major credit reporting agencies have 30 days to process a dispute, but that doesn’t mean they will side with you and remove the error. Then what? Are you just stuck with bad credit?

Another option you may want to consider is hiring a credit repair company to help you fix your credit report mistakes. Just like any industry, there are good credit repair companies and bad ones. A good credit repair company will never:

  • Charge you upfront before they’ve completed work on your behalf.
  • Ask you to create a new identity in order to escape your debts.
  • Guarantee you a “200-point improvement in your credit score overnight.”

For some people, the credit clean-up process is just too complex to navigate on their own or they don’t have the time or energy to devote to it, which is why they opt to do nothing. But making steps now to improve your credit can save you a lot of heartache, headaches and money over the course of your lifetime.

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