Having bad credit is, well, bad.

Your credit score affects so many aspects of your life, even beyond borrowing money, that it’s impossible to ignore it. If you have a bad credit score, then you know too well how difficult it is to navigate the real world without a great credit score. But you don’t have to suffer through life with bad credit. You can improve your credit score.

How Credit Scoring Works

There are dozens of pieces of information that feed into your credit score. Because of that, there’s no one thing you can do to improve your credit score. On top of that, what you need to do to raise your credit score depends on what’s hurting your credit score.

Your credit score is based on the information in your credit report, which contains details accounts from companies you have credit with. Improving your credit score is a matter of improving the quality of the information on your credit report. As long as the negative information on your credit report outweighs the positive, your credit score will suffer. The presence of positive information on your credit report will help improve your credit score.

Credit scores are based on five key factors, each with a different percentage. Once you understand this, you can use the information to guide your financial decisions and your approach to improving your credit.

  • Payment history – 35%
  • Level of debt – 30%
  • Age of credit history – 15%
  • Types of credit – 10%
  • Recent credit applications – 10%

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How to Improve Your Credit Score

Improving your credit score isn’t about doing one thing to boost your score. It will take several steps to make the biggest impact on your credit. Grab a pen and pad to take notes or stay tuned to the end for steps on getting a free cheat sheet with all the information in this guide.

Start by checking your credit report.

Checking you own credit report won’t hurt your credit score as long as you use a consumer credit reporting service, like the credit bureaus, FICO, or another credit reporting tool. You can get a free copy of your credit report by going to AnnualCreditReport.com.

There are also a number of free credit monitoring services you can choose from: CreditKarma.com, CreditSesame.com, and the Discover Scorecard are a few. Be careful of any “free” credit report or score that requires you to use a credit card. These services actually enroll you in a trial subscription and begin charging you monthly when the trial is over.

Many credit reports will include an analysis providing you with the major factors affecting your credit score. Use this information to figure out how you need to approach your credit repair efforts.

Identify what’s hurting your credit.

As you review your credit report, identity all the items that could be hurting your credit score: late payments including collections and charge-offs, high balances on credit cards and loans, the lack of positive accounts, or even too many recent applications for credit. For each item you’ve identified, develop a plan of action for that item based on the information you read below.

Keep making your current payments on time.

Payment history is the most important factor in your credit score – it’s 35% of your score. Because payment history is such a significant part of your credit score, paying your accounts on time each month is the best thing you can do for your credit score. Not only does paying on time prevent late payments from being added to your credit report, it also prevents worse delinquencies like charge-offs, collection accounts, repossessions, and foreclosures. These are the worst items that can appear on your credit report and the most difficult to recover from.

If you have trouble remembering to make your monthly payments, you need a system for ensuring your payments are made on time. You can use a calendar, a planner, reminders in your smartphone, or set up automatic payments with your bank or creditor.

Here’s a free monthly bill checklist (PDF) you can use to keep track of your bill due dates.

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Make up missed payments before they hit your credit report.

Late payments aren’t reported to the credit bureaus until they’re 30 days past due, so make up a missed payment as soon as possible to keep it off your credit records. You’ll still pay a late fee, but keeping late payments off your credit report is important for protecting your credit score.

Don’t ignore any accounts.

When it comes to paying on time, some people become complacent with making timely payments only on the accounts that regularly report to credit bureaus. It’s important to know that any account can potentially land on your credit report if you fall behind on payments.

Many businesses turn to debt collectors to pursue seriously delinquent accounts and these collection accounts will wind up on your credit report. No past due account is safe from debt collections – even libraries report delinquent fines to debt collectors who then add the accounts to the customer’s credit report.

Pay off a past due balance.

Negative unpaid debts hurt your credit score. This includes credit card and loan payments that are more than 30 days past due, charge-offs, collections, judgments, and tax liens. Paying these negative balances won’t remove them from your credit report, but it will set you on the path to better credit.

There’s a benefit to paying off past due balances even though they aren’t deleted you’re your credit report. Many lenders and credit card issuers won’t approve you for a new account as long as you have an outstanding past due balance on another account. Paying off past due balances makes it easier to be approved for new accounts – accounts that will help you improve your credit score.

Open a new credit card.

Opening a new credit card will get you on the path to improving your credit, especially if you don’t have any open accounts. You need to have open, active, positively reported accounts to raise your credit score.

If you already have bad credit or you don’t have any credit at all, opening a new credit card can be difficult since many credit card issuers check credit history to approve applicants. Your options will be limited and the credit cards available for you may not have the best terms, but the goal is to use this credit card as a stepping-stone to better credit and better credit card offers.

A secured credit card is often the best choice for consumers who have trouble getting approved for traditional credit cards. Secured credit cards are similar to regular credit cards; the primary difference is that you must make a deposit to secure the credit limit. As long as you make your monthly payments on time, your security deposit will be returned to you either when you close your account or the credit card issuer converts your account to an unsecured account.

The strategy when you get a new credit card account is to use your account regularly, only charging a small percentage of your credit limit each month, and making your payments on time each month.

Get negative information off your credit report.

This can be tough, especially if the negative information is accurately reported and is within the credit reporting time limit (seven years for most types of negative accounts). There are a few different strategies you can use to get harmful information off your credit report.

Let it fall off.

Most negative information only stays on your credit report for seven years. Bankruptcy can be listed on your credit report for up to 10 years and unpaid judgments may remain on your credit report longer if the state statute of limitations for that debt is greater than seven years.

After the credit reporting time limit is up, outdated negative information will automatically drop off your credit report. If you have some older items that are scheduled to drop off your credit report in the next year or two, you can just wait it out rather than actively trying to remove these items from your credit report.

Dispute it.

Federal law allows you to dispute inaccurate or incomplete information directly with the credit bureau listing the information. That means if your Equifax credit report contains and error, you can dispute it with Equifax.

When you submit a credit report dispute, the credit bureau is required to investigate your dispute by following up with the business that listed the information on your credit report. Then, the business investigates. If it finds that the information provided to the credit bureaus is inaccurate, the business must correct the results with all three credit bureaus. The credit bureau will update your credit report and provide you with a free copy of your updated report.

If you’re unsatisfied with the results of the investigation, you can in turn, dispute the error directly with the business that provided the information to the credit bureaus, e.g. your credit card issuer. Make sure you provide copies of proof that you have supporting your dispute.

Write a pay for delete letter.

A pay for delete is a strategy to use where disputes would be ineffective (for example, because it’s an account you legitimately owe). With a pay for delete, you negotiate directly with the creditor to remove the account from your credit report in exchange for payment.

Negotiating a pay for delete is a matter of writing or calling the creditor, explaining your situation, and asking if they would be willing to update your credit report if you paid the account in full. Make sure you get any agreement in writing with a signature from the creditor and keep up your end of the deal.

Ask for a goodwill deletion.

If you’ve already paid an account, you can’t offer payment in exchange for having the account removed from your credit report. You can, however, ask that the creditor remove the account from your credit report as a matter of goodwill.

Depending on the creditor and the person you speak with (or who receives your letter), your goodwill deletion request might be a success. Keep in mind that if the information reported to the credit bureau is accurate, the creditor is under no obligation to remove it. Some are occasionally merciful.

Improve your credit utilization.

Credit utilization measures the ratio of your credit card balance to the credit limit. For example, if you’re carrying a $300 balance on a credit card with a $1,000 credit, your credit utilization will be 30%.

Thirty percent of your credit score is based on the amount of debt you have, which includes your credit utilization. Having a lower credit balance (relative to your credit limit) is better for your credit score. The higher your balances are compared to the credit limit, the more your credit score will be impacted. You can lower your credit utilization in two ways – by paying down your credit card balances or by raising your credit limit.

Paying down your balance is also preferable when you don’t qualify for a credit limit increase or you have no desire to raise your credit limit.

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Pay down your balances.

Having a credit utilization lower than 30% is best for your credit score. If you have the cash on hand to lower some of your highest credit card balances, paying them down will help improve your credit score. You can also pay your balances over time if you’re unable to reduce your balance in a lump sum. In the meantime, make sure you’re doing everything else correctly – making your payments on time and minimizing the amount you’re borrowing.

The same is true for loans. Your credit score considers the amount of your loan to the original loan balance. Your credit score will improve as you pay down your loan balance.

Transfer your balance to a credit card with a bigger credit limit.

Another strategy for lowering your credit utilization is to transfer your balance to a credit card with a bigger credit limit. Say, for example, you have a $1,000 balance on credit card with a $1,000 credit limit. Your credit utilization for that credit card would be 100%. Transferring your balance to a credit card with a $2,000 credit limit would immediately lower your credit utilization to 50%. When you transfer a balance, don’t forget to factor in the balance transfer fee which is usually around 3% of the amount you’re transferring.

Be strategic about making balance transfers. Don’t shuffle balances repeatedly to avoid making payments on your debt. Once you move your balance to a better credit card, it’s best to leave it there and focus on paying it down.

Get a bigger credit limit.

Since your credit utilization is based on the amount of credit you’re using, having a bigger credit limit will free up additional credit, lowering your credit utilization and improving your credit score. Some credit card issuers automatically raise your credit limit after you’ve used your credit card responsibly for several months. Otherwise, you can request a credit limit increase from your credit card issuer.

Getting approved for a credit limit increase depends on a few different factors: the amount of time since your last increase, your income, your account history, the amount of debt you’re carrying overall, and your credit rating. For some, a credit limit increase is simply an opportunity to create more debt.

Keep your credit cards open.

Many people have the misconception that closing a credit card will help their credit score. Unfortunately, your credit score won’t increase when you close a credit card and if that card has a balance, your credit score could actually suffer. Plus, your credit score benefits when you have open, active accounts with a positive payment history. Leave your credit cards open, especially if you still want to use them, to help boost your credit score.

Let a few inquiries age.

Credit and loan applications you’ve made within the past two years are listed on your credit report. Those within the past 12 months are included in your credit score. Applying for too many accounts in a short period of time has a negative impact on your credit score, making it seem like you may be taking on too much credit at one time or that you’re desperate for credit.

To improve your credit score, allow some of your inquiries to age past 12 months so they’re not included in your credit score. Avoid making any new applications until some of your most recent inquiries have fallen out of the credit scoring calculation.

Avoid taking on too much debt.

Not only does having too much debt hurt your credit score (remember that the amount of debt you’re carrying is 30% of your credit score), being overextended with debt payments also puts you at risk of falling behind on your payments. Before you take on an additional monthly payment, consider whether you can actually afford the payment.

It can help to create a version of your monthly budget that includes the monthly payment you’re considering before you actually commit to the new loan or credit card. Taking on debt you can’t afford can hurt all the progress you’ve made toward building a better credit score.

Be patient.

It takes time to raise your credit score. You can wreck your credit score in a matter of a few days, but it’s next to impossible to raise your credit score in that amount of time. Take the right steps, monitor your progress, and be patient with the process. As long as you’re making the right moves – paying on time and handling your credit obligations responsibly – your credit score will reflect your hard work.

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