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How to Improve Your Credit Score from Fair to Good (and Even Great)

Finance

“How do I improve my credit score?”

It’s the most common question regarding credit, and perhaps the most misunderstood. We’ve all heard the myths and misconceptions, and yet the fact of the matter is that 9 times out of 10, building or improving your credit score can be pretty straight forward.

If you have fair credit, odds are your credit history is limited and at some points spotty; maybe you have a few late payments on your report, or even one small glitch that’s exacerbated by an extremely limited credit history. Whatever the reason for your fair credit score – which is generally considered any score between 620 and 690 – it’s by no means permanent.

Improving your fair or average credit score to good or even great takes time, discipline and – most importantly – action. Here are a few tips for improving your credit score while paying down your debt and getting your credit card finances in order…

  • Check your credit report to identify negatives and false information

The very first thing you should do as you look to improve your score is to check your credit report. Your credit report is the road map to your score and explains what is – and isn’t – playing a factor in your score. If your score is particularly low and you’re unsure why, getting a copy of your credit report can go a long way toward clearing that up. You may find inaccurate information or outdated contact info on your credit report, or you may find other blemishes on your report that you were previously unaware even affected your score (an overdue library book, for example).

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By law, each American consumer is entitled to one free credit report per calendar year. Go to AnnualCreditReport.com to learn how to retrieve your credit report. If you do find inaccurate information on your credit report, the best protocol to follow is a debt validation letter to the collection agency reporting the discrepancy, followed by a dispute letter with the credit bureau reporting the inaccurate information. This process is arduous but ultimately worthwhile, considering the spike you can expect in your credit score once any misleading and negative information is removed from your profile.

Learn more about removing errors from your credit report.

  • Apply for, receive and USE a new credit card

Applying for, receiving and using a new credit card is crucial for making credit score improvements. Credit cards for fair credit are proven credit-builders, and when used correctly can improve your credit score over time in a number of ways.

First and foremost, opening a new credit card extends your total available credit and consequently lowers your credit utilization ratio, which is the amounts you owe relative to your total available credit. The lower this is the better in the eyes of creditors. And no, carrying a balance does NOT improve your credit score, a myth I was handed down when I applied for my first credit card.

Using a credit card, however, will improve your score since it shows that you’re an active user of credit that makes on-time payments each month. And the biggest factor in determining your credit score is your payment history, so growing your credit score via monthly payments – and even multiple payments each month – is an easy and methodical way to improve your credit score over time.

According to FICO, over a third of your credit score is contingent on your payment history. Keep your payments in order each and every month and over time you’ll see solid growth in your score.

Finally…

  • Prioritize Paying Down Your Debt

Getting back to that credit-utilization ratio, you’ll never improve your credit score in any significant way if you carry a high balance each month. Frankly, the higher your balance, the more volatile you look as a credit card consumer and the less likely you are to a.) improve your score and b.) get approved for lower interest rates on loans, and better credit card offers than the fair credit tier in the future.

If you want to get your credit score from fair to good and beyond, it’s imperative that you make paying down your debt an absolute priority.

To sum it up, there are three actions you can take to start improving your credit score today; request a copy of your credit report and comb through it for inaccuracies, apply for a new card and make on-time, in-full payments each month, and lower the amount of debt you carry each month by paying down your outstanding debt. Follow these steps and over the next six to 12 months you’ll see a steady rise in your credit score, from fair to good and hopefully someday excellent.

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