To How to Fix your Credit Score

A credit score is an evaluation of a customer’s creditworthiness, based on one’s credit history. A good credit score can help you qualify for the best interest rates and terms when you need to borrow money.

The Fair Isaac Corporation (FICO) has defined ranges for credit score:

1.Excellent – 750+
2.Good – 700 to 749
3.Average – 650 to 699
4.Below Average – 550 to 649
5.Bad – 550 and below

Things that negatively impact your credit score:

  • Maxed out credit cards
  • Negative public records like bankruptcy, foreclosure, etc
  • Being a victim of identity theft

Here are several ways you can fix your credit score:

1.Check credit report:

The first step towards fixing your credit score is to go through your credit report thoroughly. It’s easy to check your credit reports; you’re entitled to a free copy, once a year, under the Fair Credit Reporting Act. This is because it contains information that is used to calculate our credit score and there’s a possibility of errors. Check for any payments that are incorrectly listed for any of you accounts and verify the outstanding amounts for every open account. In case you come across any errors in the report, resolve them with the credit bureau.

2.Stay under the credit limit:

The easiest way to keep yourself below the credit limit is to make numerous small payments – also called micro-payments – to keep your balances down. You can also opt for a higher credit limit.

3.Credit Ratio:

Credit utilization ratio is an important method of calculating your credit score. It’s obtained by the below method:

Credit Ratio= Aggregate of all credit card balances/ Your credit limit

A ratio of less than 30% is ideal to apply for new loans if required. A low ratio is a sign that you haven’t spent over the credit limit and you know how to manage your spending.

4.Touch base with collections agencies:

If you have small dues and you don’t mind paying them immediately, call the collection agency and request for a “Pay for delete” – you pay the amount owed and they remove the negative balance from your credit report completely. Remember to collect a “pay for delete” written letter from the agency showing that they’ve agreed to go through with the process.

5.Avoid late payments:

One of the biggest contributors to a bad credit score is delayed payment. Missed payments stay on the report for a minimum of 7 years. Make sure you make timely payments towards all your bills. One way to keep late payments in check is to setup reminders on your phone. You can also setup reminders through online bank portals which send you email and text reminders about outstanding payments. You can also have a standing instruction with your bank to make out payments on your behalf.

6.Reduce your dues:

The best way to fix your credit score is to stop or reduce using credit cards. Maintain a constant credit equal to or under 10% available credit. Using the entire limit (or even close to it) will increase the credit ratio and therefore hamper your credit score.

7.Obtain a secured credit card

A secured credit card is linked to your savings account and will be an efficient way to build your credit as it puts your spending under checks

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