With inflation recently clocking in at 40-year highs, the Federal Reserve is poised to rapidly raise rates throughout the rest of 2022 to bring inflation under control. This change could have major impacts to the financial health of many consumers, as everything from mortgages and car loans to credit cards will see increased rates as well. Now is the time to work on your credit score to make sure you are not overpaying interest and keeping as much money as possible in your pocket. Even if you've made mistakes in the past, you can follow these five basic steps to quickly improve your credit score.
1. Clean Up Your Credit Report
When was the last time you reviewed your credit report? It may be not on the forefront of your worries; however inaccuracies could be haunting you that you may be unaware of. The first step is to request a credit report from the three major credit reporting companies: Equifax, Transunion, and Experian. These three bureaus maintain credit reports that should contain similar information, yet it will not be identical. You are entitled by law to one free report every 12 months, and for the rest of 2022 you can even get a free report weekly. If you do find inaccuracies, report them immediately by calling the credit bureau to file a dispute. By removing these inaccuracies, you can boost your credit score in as little as 30 days.
2. Pay Down Your Balance
Credit utilization is how much you owe compared with how much credit you have. Trying to keep your credit utilization below 25% is crucial in keeping your balances low. If you must make an emergency purchase, like car repairs or paying for medical bills, make it a goal to pay down the balance as quickly as possible. You could forgo your daily cup of coffee and use that extra money to make additional payments to pay down your balance.
3. Increase your credit limit
You may be wondering "how does increasing my credit score help pay down my balance?" It may sound odd, but this will actually cause your credit utilization rate to decrease if granted. A big takeaway to remember is if the credit card company increases your credit limit, do not run to spend it. Make sure to keep making monthly payments to decrease your balance so that you do not dig yourself a deeper into credit card debt.
4. Open a new account
If your current credit card company refuses to increase your
credit limit, you might consider applying for a card through a different
lender. Your credit utilization rate is based on open lines of credit and balances you have. By opening a new account, you can help increase your credit utilization rate which will then increase your credit score. This also can help if
you are opening a credit line for the first time since lenders like to see that you can manage multiple
accounts responsibly. However, avoid opening multiple accounts at once as it can cause you to be reckless with your spending. So limit yourself to one additional account to be safe.
5. Negotiate Outstanding Balances
If you have negative remarks on your credit report from past due bills being turned over to collections, you can research if those companies are offering any debt relief options. You may be able to settle your amount with the collection's agency to achieve lower monthly payments. Some companies even allow you to lump the amounts into one payment, eliminating stress of coming face to face with multiple bills at the mailbox. One tip is to make sure if you enter into any type of payment agreement, that you obtain a written copy for your records. That way if there is ever any dispute of active payments, you will have a document to protect your claim.