COVID-19’s impact on the housing market
The information provided on this website does not, and is
Credit disputes: How to initiate one and improve your credit score
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Fast Credit Repair Solution editorial disclosure for more information.
Your credit score is one of the most crucial factors of your financial health. It affects several major milestones in your life, whether you’re qualifying for an auto loan, trying to secure a low interest rate on your credit card or getting approved for a mortgage. The higher your score, the more likely you are to be approved for loans and credit cards—plus the more likely you are to secure lower interest rates on both, saving you money over time.
If you’re struggling with a low credit score, there are steps you can take to start improving it. Some steps are as quick as a phone call, while other strategies will take more time. Regardless of how easy some of these steps are to implement, it’s important to remember that improving your credit score won’t happen overnight—but it can absolutely be done with some patience and persistence.
If you start addressing your credit health and take action on the areas hurting your score, you’ll be able to raise that number over time. Take a look at this guide to understand the different ways you can improve your credit score and secure more financial freedom down the line.
Before You Begin, Check Your Credit Score
To begin improving your credit score, you’ll want to grab a copy of your credit report to see where you stand. Then you can decide what to tackle first if you’re looking to improve your score. You can pull one free credit report a year from each of the major credit bureaus (Equifax®, Experian® and TransUnion®) through the official Annual Credit Report website. Review your report to see where you stand and assess what areas are impacting your score the most. After taking the time to learn what factors determine your credit score and assess your personal credit report, follow the steps below to start taking action to raise your score.
1. Pay Your Bills on Time
Frequency: Monthly (or just once if you set up automatic payments)
As mentioned above, payment history is one of the most significant factors in determining your credit score because it tells lenders how likely you are to repay borrowed funds. A history of consistent on-time payments will increase your score, whereas a single late payment can cause it to drop drastically. Keep the following in mind if you’re working on paying your bills on time:
- Missed payments can remain on your credit report for seven years. It’s important to catch up on any outstanding bills as soon as possible. Even though late payments remain on your report for seven years, the impact of these negative items lessens over time compared to more recent ones.
- Contact your creditors if you know you’ll have trouble making a payment. It’s possible they’ll forgive a single late payment if it’s your first one, or if you otherwise have a positive history with the creditor. The worst they can do is say no, so it doesn’t hurt to try. You can also ask about creating a payment plan if that will lessen the burden of paying a bill in full.
- Paying off a collection account won’t remove it from your credit report. Collection accounts can also remain on your report for up to seven years, although the impact they have on your credit score will diminish over time. If you’re planning on paying off a collection account, consider negotiating with your debt collector or agency by asking for a pay for delete letter. This is a tool used to remove negative information from your credit report in exchange for payment, although collection agencies aren’t obligated to accept it.
2. Set Up Payment Reminders
Frequency: One time
An easy way to stay on top of payments is to automate them or set your own reminders. The right strategy for you depends on how often and regularly you’re paid. Take a look below to see what method is best for you:
- Payment reminders: If you have an irregular pay schedule or other factors sporadically impacting your finances, it’s important to set up payment reminders to stay on top of your bills. You can set up reminders on your phone or email (or both) so you never miss a payment again.
- Autopay: If you get paid on a regular basis and have regularly timed expenses, setting up autopay is a surefire way to never miss a payment. You can schedule autopay soon after your paycheck hits your account, ensuring your bills are immediately paid and you know exactly how much money you have available until your next paycheck rolls in.
- Micropayments: Another helpful method to try is micropayments, meaning you pay multiple times a month. This method works well with irregular pay schedules since you can immediately pay toward your debt when you get paid. If you’re paid regularly, you can set this up with autopay, or simply pay down purchases immediately after you make them.
3. Factor Utility Payments Into Your Credit Score
Frequency: One time
Typically, only things like loans and credit cards impact your credit score. Today, there are new ways to factor things like rent, cell phone bills and utility payments into your score. If you know you make these types of payments on time, it’s a great way to raise your credit score.
Experian Boost is a free opt-in service that allows you to factor utility and cell phone payments into your score. By allowing Experian to connect to your bank accounts, your utility payments are identified and verified by the service and then added to your credit score with your permission.
UltraFICO is another service that allows you to connect your checking, savings or money market accounts and have additional information added to your credit score that’s not visible on a traditional credit report. These services can be helpful if you have sound financial habits in these types of accounts that would indicate responsible money management to lenders, such as having consistent cash on hand or having a history of positive account balances.
4. Only Apply for New Credit Accounts When Needed
Frequency: As needed
We mentioned that your credit mix accounts for 10 percent of your credit score, which is true. However, opening new accounts shouldn’t be the first thing you do if you’re trying to improve your credit score, and doing so just to mix up your credit accounts likely won’t improve your score. This strategy can easily backfire and end up lowering your credit score. Here’s why:
- Too many hard inquiries: Too many hard inquiries can raise red flags with lenders—it can be viewed as an indicator that you’re having money issues and need to borrow more money than you already have. Hard inquiries include applying for a new credit card, an auto loan, a mortgage or another form of new credit. Hard inquiries stay on your report for two years but should only affect your credit score for the first 12 months after they’re initiated.
- Lowering your credit age: Remember that the length of your credit history makes up 15 percent of your score. The more credit cards or lines of credit you open, the lower your overall credit age will be. This is why it’s important to proceed with caution and assess all possible effects that applying for a new credit account could have on your score.
- Temptation to spend: Seeing a new credit account with a fresh balance can make it difficult to fend off the temptation to spend, potentially leading you to accumulate more credit card debt. If you don’t already have a handle on your spending habits, opening new credit accounts probably won’t be the best strategy when trying to improve your credit score.
5. Handle Any Collection Accounts
Frequency: As needed
After a certain amount of time, late or missed payments can be sent to a collection agency. When this happens, you’ll be contacted by debt collectors to settle the debt. Collection accounts can wreak havoc on your credit score, and it’s not wise to ignore them.
If you can, speak to the original creditor to see if you can come to a payment agreement through a pay for delete letter. As mentioned above, this is a negotiation tool that asks for negative information to be removed from your credit report in exchange for paying off the full balance.
If the creditor agrees to these terms, you’ll need to get the agreement in writing to ensure they follow through. Keep in mind that not all creditors accept this type of arrangement, so it’s not a guaranteed fix.
6. Dispute Inaccuracies on Your Credit Report
Frequency: Every three months
Once you’ve obtained your credit report to review, you should check for any inaccurate information that could be harming your credit score. Ideally, you should do this on a routine basis.
Inaccurate marks on your credit report can occur for a variety of reasons, including purchases made by someone who stole your identity or misreported late payments by your lender. Disputing items on your credit report takes a few steps and involves contacting each bureau, as well as the entity that gave the information to the credit bureau (known as a “data furnisher”).
Once you’ve alerted the bureaus, you’ll have to wait around 30 to 45 days for them to complete an investigation on the item you’re disputing and report back to you.
7. Maintain Low Credit Utilization
Frequency: Ongoing
Keeping your credit balances low is critical to maintain a low credit utilization—how much credit you’re currently using compared to the total credit you have available. Since credit utilization is the second most influential factor of your credit score, maintaining low balances and paying down debt are key focus areas if you’re looking to improve your score. Here’s what you should know about credit utilization:
How to Determine Your Credit Utilization
Add up all of your credit card balances and divide the amount by your total available credit. For example, if you usually charge around $5,000 each month and your total credit limit across all your cards is $10,000, you have a 50 percent credit utilization ratio. You can use the same equation for a single credit card. It’s wise to pay attention to both your overall and individual credit utilization ratios to see where you should prioritize your repayment efforts. Lenders usually consider borrowers with a low ratio of 30 percent or less as financially responsible and therefore less risky. It indicates that you’re capable of managing credit and aren’t prone to maxing out your cards.Timing Matters
The time you pay your credit card bill can affect your credit utilization. For instance, while you may have paid off your balance in full before the due date, your creditor may have reported your balance to the credit bureaus before your payment was submitted. This could result in your balance appearing higher than it really was for that month. A simple fix is to ask your lender when they report to the credit bureaus and plan on making your payments before that date rolls around.Quick Ways to Fix Your Credit Utilization
If you’re having trouble keeping your balances low, there are a couple of things you can do to help lower your credit utilization ratio:- Move your due dates: If an inconvenient due date is causing you to pay off your balance each month, you can call your creditor and ask them to change it for you.
- Raise your credit limit: An increased limit raises your available credit, thus positively impacting your credit utilization. Keep in mind that you’re less likely to be approved for an increase if you don’t have a positive history with your creditor or already have a high balance on your credit card. This will also result in a hard inquiry on your credit report, so review your report thoroughly before deciding if this is the right move for you.
- Turn on high balance alerts: Most credit cards have a high balance alert function that will notify you when you’re close to a high credit utilization ratio. This can stop you from adding more charges to your account before realizing you have a high balance.
8. Keep Old Credit Cards Open
Frequency: Once a month
Active credit cards with a longer history keep your credit age high (remember, the length of your credit history accounts for 15 percent of your score) and also contribute to your overall available credit, which positively impacts your utilization ratio.
Some companies may close old cards if they don’t see any activity on them. One trick to avoid this is to set up automatic payments on that card. For example, you can schedule a bill payment to be automatically paid with an older card, then set up an automatic transfer from your checking account to the card to pay off the balance.
Keeping an old card open isn’t always the best option—if there are annual fees or other expenses associated with it, it might cost you more than it’s worth to keep it open. If you do wish to close a card, make sure to calculate your utilization ratio with the remaining credit you would have available to see where your ratio stands without it.
How Fast Can You Raise Your Credit Score?
The time it takes to rebuild your credit score depends on the types of negative items on your report and the extent of your unique credit history. There’s no specific time frame for how long it could take since it’s based on a variety of factors, such as how many negative items you have on your report, the age of the negative information and what your credit score was before it dropped.
Below are some major negative items and how long they remain on your credit report:
- Hard inquiries for new credit: Two years.
- Delinquencies: Seven years. This refers to any credit payment overdue by 30 days or more.
- Public record items: 10 years. Bankruptcies are the only public records that appear on your credit report.
How Your Credit Score Is Calculated
It’s important to understand how it’s calculated in the first place. The five main areas that impact your credit score are your payment history, your credit utilization, the length of your credit history, inquiries for new credit accounts and the types of credit you use. The impact of each area varies:
- 35 percent—Payment History: Consistent, on-time payments are the highest weighted part of your credit score because they tell lenders whether you can be trusted to pay back what you borrow.
- 30 percent—Credit Utilization: This refers to how much credit you’re using compared to the total credit you have available. Even if you make all your payments on time, constantly maxing out your credit limit each month is a negative signal to lenders
- 15 percent—Length of Credit History: Your credit history length gives lenders a better picture of your overall financial responsibility and potential risk. A longer credit history works in your favor (as long as it’s not full of late payments and negative marks).
- 10 percent—Inquiries and New Credit: This is how many new accounts you have or have applied for. Requests to open a new line of credit—known as inquiries—can damage your score if made in excess.
- 10 percent—Credit Mix: Your credit mix refers to the various kinds of credit you’re using, such as mortgages, installment loans and credit cards.
Establishing Credit for the First Time
If you’ve never opened a credit account before, you’ll have what’s known as a thin credit file. If you have little to no credit history, lenders don’t have enough information to calculate your credit score. If this is your situation, it could take around six months for activity to be reported on your account. However, this credit score might not be enough to get approved at reasonable interest rates depending on the type of credit account you’re after. The interest rate on credit accounts and loans depends on your credit score, which is tied to your credit history. For example, it’s unlikely that someone with less than one year of credit history would qualify for a 30-year mortgage.
- Luckily, there are steps you can take to start building up a solid credit history. To begin establishing credit, you can try one of the following methods:
Secured Credit Card
This type of credit card requires a cash deposit that you put down up front, which in turn acts as the balance available on the card. Its main function is to help borrowers build or rebuild credit. Lenders are willing to approve those lacking credit history for this kind of card because missed or late payments are covered by your cash deposit, so there’s no risk to the lender. After around 12 months of good payment history, your issuer may convert you to a regular credit card and refund your deposit.Credit Builder Loan
Similar to a secured credit card, this loan is available to those lacking a credit history because it carries less risk for lenders. The money on this type of loan is deposited into a secured savings account that you can’t access until the loan is paid off. Some credit builder loans even allow you to make a little bit of money by paying interest.Bottom Line
While there’s no quick fix to improve your credit score, implementing the steps above and working toward establishing small, consistent habits will make the biggest impact in the long term. Mastering your credit and improving your score will secure you more financial freedom down the line, and allow you to make major financial decisions—like buying a home or car or applying for a loan—a far smoother process (with better interest rates, too). There are many resources available to guide you through the process of improving your credit score so you don’t have to tackle it alone—especially when it comes to removing negative items from your credit report, the consultants at Fast Credit Repair Solution can clear up any confusion that often comes with the process. Above all else, remember to give yourself grace along the way and congratulate yourself for working toward such an important goal. -
Daniel Woolston is the Assistant Managing Attorney in the Arizona office. Mr. Woolston was born in Houston, Texas and raised in Sugar Land, Texas. He received his B.S. in Political Science at Brigham Young University and his Juris Doctorate at Arizona State University. After graduation, Mr. Woolston worked as a misdemeanor and felony prosecutor in Arizona. He has conducted numerous jury trials and hundreds of other court hearings. While at Fast Credit Repair Solution, Mr. Woolston dedicates his time to training paralegals and attorneys in credit repair, problem solving, and ethical and legal compliance. Daniel is licensed to practice law in Arizona, Oklahoma, and Nevada. He is located in the Phoenix office. Note Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
How to deal with debt collectors in 3 simple steps
When considering how to deal with debt collectors, it is
