Guide: Understanding Ways to Improve Credit
Credit scores are often subject to change. They can fluctuate depending on circumstances and factors that may or may not be out of our control. Regardless of how it happened, having a low credit score is no laughing matter.
It can result in high interest rates or loan denial, and it can cost thousands of dollars over time.
If you find yourself with a low score, it will always be in your best interest to find ways to improve credit rates. It is important to find the best way to improve credit for your own finances. To do this, it is crucial to understand how credit works and the factors that can change your score.
Some common questions regarding this subject include:
- How can I fix credit fast?
- What is the best way to fix credit?
- How can I qualify for a credit card to fix my credit?
- What factors affect my credit score?
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To answer these questions and more, AdvisoryHQ has build this guide to help you understand good ways to improve credit and maintain that improvement. Each aspect has been examined and streamlined to give you the most useful information about how to fix your credit and take control of your finances.
What Is Credit?
Credit refers to trust that enables companies to provide goods or services to customers with the understanding that payment will be made in the future. Credit is a crucial aspect of modern finances that allows customers and companies to strike long-term business deals.
Perhaps the most important aspect of credit is trust. Companies need to know that customers are capable and likely to make payments toward rendered services in order to protect themselves from financial loss.
It would be extremely time consuming to build an individual relationship with each customer before choosing to work with them. So, independent bureaus calculate credit scores to help businesses make this judgement quickly. Bureaus gather financial information for each customer and publish a score designed to gauge thier ability to repay credit based on how they have paid in the past.
Companies can access these scores to help them assess how to best work with a customer and how much trust to place in them. This allows companies and customers to enter into new relationships quickly and easily.
There are a few different credit bureaus, and they each use a unique method of score calculation. It is possible for one single person to have multiple credit scores. Though they are all different, many focus on the same general factors. The best way to fix credit is to focus on these factors and alter related behavior.
The factors used to calculate credit scores usually include:
- Payment history
- Credit utilization
- Age of credit
- Mix of credit
- Credit inquiries
Fixing Your Credit
Credit scores are subject to change based on a customer’s behavior and can occasionally begin to slip below desirable levels. When this occurs, customers often seek ways to improve credit and to fix credit fast.
It is important to keep in mind that simple financial responsibility is not enough to fix bad credit. Customers can only improve credit ratings with payments and activity that is reported to credit bureaus. Customers must demonstrate that they are able to use credit responsibly in ways that can be measured by the bureaus to improve their scores.
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Best Ways to Improve Credit with Solid Habits
Your credit score is built around your financial habits. If you are in the habit of making late payments, using too much credit, or showing other signs of financial instability, it can really affect your score.
Perhaps the fastest way to improve credit is by practicing good financial habits that show reliability. This can allow you to fix your credit through existing credit accounts. This does not just apply to credit cards; good habits can improve credit ratings through accounts like:
- Mobile phones
- Student loans
- Personal loans
- Rental payments
- Auto loans
Some types of accounts, like utilities, are usually not actively reported. They may do little to fix your credit, but they can damage your credit if you miss payments or pay irregularly. Treating each account with care can be the best way to fix credit because it will reduce the likelihood that your score will suffer damage.
Fixing Your Credit with Consistent Payments
Late or missed payments can dramatically decrease your credit score. It is important to make every payment on time every month. Just as missed payments can hurt your score, consistent, timely payments can help fix your credit.
Bills left unpaid may be sold to collection agencies. This is to be avoided at all costs as it will show up on your credit report and can severely damage your score. Paying every bill on time every time can help you avoid dings to your score and help you fix bad credit.
Credit utilization rates are another huge part of your credit score. Keeping your utilization rate low is one of the best ways to improve credit.
Credit utilization rates measure the difference between an account’s credit balance and credit limit. Keeping your utilization low is considered to show financial responsibility because it results in smaller amounts of debt. Smaller amounts of debt are more affordable and less likely to result in a defaulted or late payment.
Because low credit utilization reflects desirable financial habits, it can fix bad credit. Many financial experts recommend a credit card utilization target of 30% or less.
Increase Your Credit Limit
The fastest way to improve credit through utilization ratios is to increase your account’s credit limit. Though 30% is considered to be a good ratio, lower rates can fix your credit faster. Cardholders can fix bad credit and maintain their current spending habits by increasing their limits and automatically decreasing their ratio.
Space Out New Accounts
15% of your credit score is based on your credit age. Older credit profiles are considered to show stability. Keeping your credit age as high as possible is one of the best ways to improve credit.
The age of your credit profile is measured in two ways. First, it accounts for the age of your oldest account. Second, it considers the average age of your accounts combined.
Opening a large number of accounts at once can damage your score because it will lower the average age of your credit profile. Spacing out new accounts or opening as few new accounts as possible can help you fix your credit.
Using Credit Cards to Fix Bad Credit
Proper use of a credit card might offer the best way to fix credit. Balances that are paid off on time and maintain a low utilization ratio can help improve credit ratings quickly.
Credit card companies are often reluctant to issue accounts to people with poor or nonexistent credit history. This is because customers with low credit scores are more likely to default on their payments, which could financially damage the company.
This risk can make it difficult for individuals hoping to find the best way to improve credit to be approved for a credit card. But, there are some options available to help those with low scores fix bad credit with the use of a credit card.
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Fix Your Credit with Co-signers and Authorized Users
Many lending companies will approve customers with low scores if they use a co-signer. A co-signer will take on legal responsibility for the account and be held liable for all charges made with the card.
Because they will be responsible for the payments, it is the co-signer’s credit score that will determine the approval. This option requires a lot of trust between both co-signing parties, but it can be a good way to fix bad credit with a credit card.
Some lending companies also allow account holders to add authorized users to existing credit card accounts. Authorized users are given joint access to the account. Using the credit extended there might be the best way to improve credit if you have a friend or relative willing to add you to their account.
Authorized users are not legally obligated to pay for the charges and can qualify for credit in the same way as using a co-signer. In order to fix bad credit, it is important to make sure that your company reports authorized users to credit bureaus.
How to Fix Your Credit with Secured Credit Cards
Secured credit cards are one of the best ways to improve credit with a credit card. Secured cards can be used just like any other card to fix bad credit while offering credit card companies a degree of protection.
Secured credit cards protect companies from the risk of default through security deposits. Each cardholder must pay a security deposit that is equal to the credit limit on their card. This deposit is held by the company to cover any charges in the event of a default.
This allows applicants with little or no credit the chance to use a credit card to fix bad credit without putting the company at risk of loss. Once cardholders have used the account to improve credit ratings, security deposits can be returned.
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How to Fix Your Credit with Accurate Reports
The best way to improve credit is to make sure that your credit reports are accurate. Errors are not uncommon and can appear on up to 25% of reports. Credit report errors can easily hurt your credit score and stand in the way of fixing your credit.
The best way to improve credit with accurate reports is to stay informed. Regularly check both your credit scores and credit reports to ensure they are correct. You are entitled to one free credit report every year, but can work with a number of different companies that offer reporting services to check reports and scores regularly.
Fix Your Credit by Disputing Inaccuracies
To fix bad credit due to report errors, you must dispute them with the originating credit bureau. There are three main credit bureaus that gather and report credit information. These bureaus are:
If a discrepancy does appear on your report, you can fix your credit by disputing the error directly with the issuing bureau. It is important to keep in mind that all three operate independently. One error can appear on multiple reports, but to fix your credit, you will need to file separate disputes with each affected bureau.
Disputes can often be filed either online or through the mail. You will need to make sure to have your financial documentation in the event it is required to fix your credit.
You can negotiate to fix your credit by correcting errors or changing statuses to reflect proper payment. However, be sure to get all agreements in writing before any extra payments are made.
Credit Fixing Companies
For relatively simple errors, you may want to fix your credit by filing your own dispute. However, for more complicated problems, it may be better to employ a credit fixing company.
Some credit fixing companies are predatory and disreputable. They can charge high premiums and be ineffective in fixing your credit. To make sure that you are working with a high quality credit fixing company, look for services that:
- Explain your rights in a clear way
- Answer questions directly
- Show interest in your needs and seek to understand your credit
- Explain how they can help you fix your credit
Credit fixing companies offer customers ways to improve credit rates by ensuring that their reports are accurate, fair, and properly verified. They are able to use your financial documentation to file and manage disputes and fix your credit on your behalf.
These companies can fix credit fast by working with credit bureaus. Disputes must be responded to and resolved within 30 days. This can make error correction the fastest way to improve credit.
How Long Will It Take?
The greatest credit score healer is time. Damaging information on your credit report cannot last forever. When enough time has passed, usually 7 years, damaging incidents can no longer be reported. Big ticket items like collection accounts, tax liens, and even bankruptcies will all eventually be removed from your report.
Even though items can remain on your report for many years, it does not mean that they will always be relevant to your credit score. As time goes on, old patterns of behavior become less important to how your score is calculated because they become less indicative of your future behavior.
Image Source: ABC News
According to information published by Vantagescore and reported by ABC News, different actions can affect scores for different periods of time. Opening a new account, closing an account, and reaching a credit limit can affect your score for about 3 months. However, these effects will gradually decrease over time as they become less relevant.
When scores dip lower than we like, it is natural to want to fix credit fast. It is important to keep in mind that each person’s finances are unique and individual to them. Fixing credit fast becomes a relative term. People must find ways to improve credit that fit their own finances and must understand that the time it takes to improve credit ratings depends on their original score, how their score was damaged, and their credit behavior in the mean time.
Conclusion: Understanding Ways to Improve Credit
Practicing responsible financial habits is one of the most effective ways to improve credit. When your score drops, it is in your best financial interest to understand how credit works and how to fix credit fast.
Keep some of our larger points in mind:
- One of the easiest ways to improve credit is through good habits
- You can protect and fix your credit with report disputes
- Credit cards options exist to fix bad credit regardless of credit history
- The time it takes to repair credit depends on individual finances and credit information
No matter how your credit was damaged, understanding ways to improve credit is very important for building solid finances. Bad credit is to be avoided at all costs, but it is never the end of the world. Eventually, even the most damaging items become less important. One of the most important ways to improve credit is to focus on the future and build productive habits.
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