By Paula Pant, WiserAdvisor.com contributor
1. Pull Your Credit Report
First and foremost, you need to know where you currently stand.
You can get a free credit report each year from the three major credit reporting agencies (TransUnion, Experian and Equifax). Your credit report tells you why your score is as low as it is — maybe you’ve got a ton of open accounts, maybe you owe way too much, maybe you’ve made some late payments. If anything is incorrect on your report, this erroneous information could be hurting your credit score without you even realizing it.
Request your free report from AnnualCreditReport.com, then look it over carefully. Do the balances listed match your current account statements? Are there any late payments you know you actually made on time? If you see any errors or items you don’t recognize, contact the reporting agency right away to get it corrected.
2. If You’re in Debt, Stop Using Your Cards
Do you currently carry a credit card balance? Then — even if you’re making on-time minimum payments — you should stop digging yourself further into debt.
A portion of your credit is determined by your “utilization ratio” — the ratio of the amount you owe, relative to your total borrowing capacity. The higher your balances (relative to your limit), the more damage to your credit score.
Take the credit cards out of your wallet, cut them up or even freeze them in a block of ice in your freezer — do whatever it takes to stop you from adding anything extra to your account balances. Any measures you’re taking to boost your credit score will only be undermined if you keep racking up higher balances.
This may mean you need to change your spending personality, simplify your lifestyle or cut back on some areas of your budget. Doing these things now will help you maintain that higher score once you achieve it.
3. Pay Any Overdue Charges
If you’ve missed any payments, make up for these ASAP. The longer you wait, the more it drags down your credit score.
Your credit report doesn’t simply show whether your payment is “on-time” or “late” — it also shows how late. A payment that’s less than 30 days late is less damaging than a payment that’s 60 days, 90 days or even 120 days overdue.
4. Start Paying Down Your Balances
Debt-to-income ratio plays a big part in your credit score, as does your total amount of outstanding debt. Come up with a plan to start paying down your balances, and your credit score will thank you for it. (You’ll thank yourself for it, too, as you gradually feel the burden of debt lift from your shoulders.)
A popular payment strategy is the “snowball method,” where you put as much money as you can towards paying down the account with the smallest balance; then, when that one is paid off, you move on to the next-highest. While this doesn’t make pure mathematical sense (logically, you’d want to order your debts based on interest rate, rather than balance), it does allow you to enjoy the psychological victory of wiping one of your debts off your list. In other words, you achieve a “small win,” which fuels your motivation.
5. Don’t Close Old Accounts
You may think getting rid of accounts you’ve paid off years ago will help your credit score, but it will actually do the opposite. A portion of your credit history is determined by the average age of your accounts, which means older accounts boost your credit score. The fact that you were able to pay off your old accounts reliably and that you’ve held those accounts for years are marks in your favor.
You don’t need to use these accounts — just don’t close them.
6. Build Good Credit
If your score is low because you simply don’t have any credit history — either good or bad — open a line of credit and start making small charges that you pay in full every month.
A student card, department store card, secured card or gas card is easier to qualify for than a major credit card, so apply for one of those if you can’t get approved for a major credit card. Make a point of charging only a small amount to it each month and paying the balance completely each billing cycle. This will help you build a positive history of payments, which edges your score up another notch.
7. Become an Authorized User on Someone Else’s Account
If your score is low because you don’t have much of a credit history, or you’ve mismanaged your credit in the past, it can be hard to get a card on your own to re-establish your good credit. You might want to consider asking a trusted friend or relative if they’d be willing to add you as an authorized user on one of their accounts.
Make absolutely certain that you will be able to pay off any charges you make, in full, each month — both for the sake of your credit score and for the sake of your relationship. Also, don’t become an authorized user on someone’s account if they might become late or delinquent in their payments.
8. Try Negotiating
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Credit card companies want to keep your business, so you may be surprised to find that sometimes they are willing to negotiate with you in order to do so. Call up customer service and see if there are any options available to you.
If you’re having trouble making your payments, they may have hardship arrangements available that will help make payments more manageable for you. For example, they might be willing to lower your minimum monthly payment based on a hardship. This means you won’t need to generate a “late payment” on your credit report.
9. Raise Your Credit Limits
A high debt utilization ratio (meaning you’ve used up too much of your available credit) can hurt your score. If you’re currently in decent standing with your creditors, you might be able to ask them to raise your credit limit to improve this ratio.
This move comes with a big warning, though: Do this if and only if you trust yourself not to be tempted by this higher limit. It doesn’t mean you can spend more money; it’s a strategic move and nothing more. If you use any of this extra credit, you’ve defeated your own purpose.
10. Get Help If You Need It
If you’re in over your head, having trouble making your minimum payments or are already in default, seek the help of a reputable nonprofit credit counseling agency, or talk to a financial advisor. These companies can help you negotiate with your creditors and come up with a payment plan that will get you back on track.