6 Ways To Improve Your Credit Without Even Trying

Jeff Rose | Forbes

While it can take years to build good credit, it’s possible to “undo” your progress in a short amount of time. If you make a bunch of late payments on a credit card or let an account go into default, for example, the damage to your credit score can be quick and painful. And, you may not even realize how bad it is until you go to apply for a loan or an apartment and get a big, fat denial.

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Fortunately, there are some credit-boosting strategies that are fairly easy to implement. It does take time to rebuild your credit, yes, but you can make progress if you get started right away.

6 WAYS TO BOOST YOUR CREDIT SCORE WITHOUT EVEN TRYING

If your goal is bringing your credit score back up to its former glory but don’t want a bunch of hassle or stress, it’s wise to be strategic with your time and your energy. Here are six ways to improve credit that don’t take much effort at all:

#1: PAY DOWN DEBT TO IMPROVE YOUR UTILIZATION RATE.

According to myFICO.com, the amounts you owe in relation to your credit limits makes up 30 percent of your FICO score. If you carry a large balance compared to your credit limits, you can expect your credit score to tumble. Why? Because, when you owe a lot of money or max out your cards, it shows creditors you’re hungry for credit and perhaps a riskier customer than they thought.

The answer here is simple if you’re serious about improving your credit. If you want to lower the amounts you owe (a.k.a. your utilization rate), you need to pay down as much debt as you can and refrain from running up balances you can’t pay off right away. Most experts suggest keeping your utilization below 30 percent if you hope to optimize your credit score. So, if you have one credit card with a $5,000 credit limit, you should strive to keep your balance below $1,500 or lower if you can.

#2: HAVE SOMEONE WITH GOOD CREDIT ADD YOU AS AN AUTHORIZED USER.

According to credit card issuer Discover, getting added to someone’s credit card account can give your credit score a boost. This situation can be risky, however, since both of your credit scores can be hurt if either one of you default or use credit irresponsibly.

To make the most out of this situation, let a friend or loved one with good credit add you to their account. Then, let their reported on-time payments help boost your score. Keep in mind, you don’t actually have to access their credit line or use your authorized user card to benefit from their on-time payments.

This strategy can even work for couples, notes Orange County financial advisor Anthony Montenegro of Blackmont Advisors.

“It’s not uncommon for couples to be made up of a saver and a spender,” says Montenegro. “If you’re the one with good credit, try adding your significant other to your credit account as an authorized signer.” With this strategy, you aid them in restoring their good name in the eyes of the credit bureaus and credit providers. It also helps your household create a budgeting system that improves your entire financial situation.

#3: GET A DEBT CONSOLIDATION LOAN.

“Opening a debt consolidation loan may raise your credit rating very quickly, says financial advisor Tom Diem of Diem Wealth Management. While this may seem unlikely, it’s true. According to a recent study from Payoff.com, debt consolidation loans that pay off credit card balances have been shown to improve credit scores by 40 points or more in a short amount of time.

With a debt consolidation loan, you may also save money since you can merge high interest credit card debts into a new loan with a lower rate and better terms. You may even score a lower monthly payment in the process.

This strategy may even work with student loans, notes Brian Hanks, a financial planner for dentists and author of How to Buy a Dental Practice. However, Hanks suggest talking with a financial planner first to make sure you understand the pros and cons of refinancing, some of which extend well beyond your credit score.

Either way, the key to consolidating debt successfully is taking your new loan seriously instead of using it as a crutch. In other words, use the opportunity to pay down debt with fervor at a lower interest rate instead of making only minimum payments.

#4: PAY ALL YOUR BILLS ON TIME.

While a late payment here and there may not seem like a big deal, the impact to your credit score may be huge. That’s because your payment history is the largest determinant of your credit score, according to myFICO.com.

“Even one late payment can have an impact on your credit,” says financial planner Alex Whitehouse of Whitehouse Wealth Management. “The later the payment, the worse it impacts your credit.”

One easy way to stay on time is to set up auto-payments. “Auto-payments eliminate the risk of bills hiding in drawers or getting lost in kitchen counter piles,” says Whitehouse. “By using auto-pay you can protect your credit and ensure that all the bills are paid on-time.”

#5: KEEP OLD CREDIT CARDS OPEN AND AVOID OPENING NEW CREDIT.

Closing old credit cards has been known to hurt your credit score. This is due to the fact that your FICO score is partially determined by the length of your credit history.

“The longer an account is open, the better your credit score – all else equal,” says financial planner Jon Luskin. “So, that’s why it makes sense to leave accounts open – even if you’re not using them.”

On the flip side, opening too many new credit cards may also be a bad idea since “new credit” is another factor used to determine your FICO score.

San Diego Financial Advisor Taylor Schulte suggests a dual approach that can help you avoid unnecessary credit dings. Fortunately, his advice is also easy to implement.

“If you’re not using a credit card anymore, and it doesn’t carry an annual fee, stick it in a drawer and let it collect dust,” says Schulte. “If it does carry an annual fee, call the credit card company to see if you can downgrade to a card with no or low annual fees.”

When it comes to new credit, don’t open or apply for any new accounts while you’re trying to boost your score. It’s as simple as that.

#6: DISPUTE ERRORS ON YOUR CREDIT REPORT.

While using credit irresponsibly can decrease your credit score, it’s possible some incorrect information on your credit report is doing its share of damage. To remedy the situation, the first thing you need to do is get a free copy of your credit report from AnnualCreditReport.com. With this government-approved website, you can get a free copy of your credit report from all three credit reporting agencies – Experian, Equifax, and TransUnion – once per year.

Take a close look at your report to see if any of the information looks out of whack. If it does, the credit reporting agency in question is required to investigate the disputed item if you report it to them.

“Take advantage of your rights,” says financial planner Don Roork of AssetDynamics Wealth Management. “Contact the credit reporting company and the information provider about mistakes or inaccuracies.”

If you need more information on exactly how to dispute credit report errors, check out this guide from the Federal Trade Commission.

FINAL THOUGHTS

While inaction can keep your credit score in a permanent state of decay, a few smart and strategic actions can get the needle moving in the right direction quickly. Before you settle for less than stellar credit, make sure you’re doing all you can to improve your credit score and your finances for the long haul.

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