Jan 17, 2017, 14:49 PM by Krista Olson

We all know our credit score helps determine whether we get approved for a loan. But, it also determines the interest rate you pay and how much it cost to borrow. Your credit score can also determine how much you pay for things like car insurance or whether you receive a job offer.

So it is critical to your financial future to know your score; understand what drives it; monitor your report; and take actions to make improvements. The start of a new year is the perfect time to review and work on improving your credit score…especially if you plan on making a big financial purchase this year.

Improving your credit score is not hard to accomplish. If you’d like assistance in understanding your credit report, Winnebago Community Credit Union offers a free credit review – just call a lender to get started! 920-233-9096 Here are a few tips to get you started.

Your credit score, sometimes referred to as your FICO score, provides a snapshot of your current credit status.  The score is determined by a variety of factors including credit history, payment history and credit amount.

So, the first thing you need to do to increase your credit score is to assess any damage you may have done in your credit history. Each person has three credit reports, one from each of the major credit bureaus: Equifax, Experian and TransUnion.  Every American is entitled to a free copy of all three of your credit reports each year under the Fair Credit Reporting Act. You can request a copy of your reports by going to www.annualcreditreport.com.

After receiving your reports, you want to make sure to look over them very carefully and highlight any inconsistencies or errors you may find.  You may notice that only one of the reports has an error while the others may not, so it is important to note which one so you can contact the correct bureau and correct that error.  Here are a couple tips to keep in mind when checking your report:

    Make sure your personal information is accurate (full name, address, birthday, etc..)
    Do the reports show all of your credit accounts?
    If the report lists late or missed payments do you remember making them on time?
    Does it show any items from years ago still appearing on your report?
    Are there accounts or applications or credit that you do not recognize?

Correct Any Errors on Your Credit Report

If you find any errors or inconsistencies on one or all of your reports, you want to make sure to file a dispute with the particular credit bureau that is showing the error.  Because your credit score is calculated from the information on your credit reports, any incorrect or inaccurate information reported can hurt your score.

What is nice is all three of the credit bureaus now have online filing for disputes and Experian only accepts online submissions.

Here is how to contact the different bureaus:

Equifax

File a Dispute with Equifax

Experian
File a Dispute with Experian

All Experian disputes are handled online

TransUnion
1-800-916-8800
TransUnion Disputes
Baldwin Place, P.O. Box 1000
Chester, PA 19022
File a Dispute with TransUnion Online

View more details on how to fix credit report errors.

Create a Plan to Improve your Credit Score

Once you are certain your credit report information is accurate and you understand your score, you can then put together a plan of action to improve it. 

If you are a young consumer who is just starting to get financially established, then not having used enough credit may be the issue as to why your score is lower, your score will build up once you have more credit history.

Fix Late Payments

If you have had late or missed payments on any accounts, it is best to get yourself back on the right track.  Set up all your bills on auto-pay, to automatically transfer funds to insure your future payments are all made on-time. This should include all loans, utility bills, credit cards etc.

I auto-pay all my bills so I don’t have to worry about forgetting to pay. 

Also if you were late or missed one payment that is showing up on your credit report it doesn’t hurt to contact that credit card issuer or lender and see if they can forgive it.  Credit card companies are pretty forgiving if you have a record of making payments on-time.

Fix Your Credit Utilization Ration

Credit utilization ratio is the dollar amount you have borrowed relative to the credit limit.  For example, if the limit on your credit card is $3000 and you have a balance of $1800 then your credit utilization ratio is 60%. The higher the percentage, the more it negatively impacts your credit score.  Experian suggests you have a ratio of no more then 30%, however Americans with the best credit scores have utilization rates or under 10%.  One third of your overall credit score is based on the credit utilization ratio across all of your credit card balances.

Keep in mind that even if you are paying off your balances every month in full by the payment due date, your score will still get dinged if you rack up your credit card balances to more then 30% of your limits each month.  This is because the credit card companies are reporting your statement balances each month which most of the time is before your monthly payment is made on the account. 

There are a couple tips to help keep you under 30% ratio each month.  First, is to keep an eye on your balances and consider paying down some of the balance if it gets close to 30%.  What I do is try to make 2 payments every month on my credit cards, that way it not only helps with the ratio but also keeps the payments lower by splitting one payment into 2 smaller payments. 

Second, is try to increase your credit limit, for the sake of lowering your ratio.  Your chances of increasing your limit might be better then you think, according to a Bankrate Money Pulse Survey 8 out of 10 people get approved for a credit increase if they apply.  By increasing your credit limit, you are automatically increasing the spread between the amount you borrowed to the allowed amount. For example, take a $3000 limit credit card that has a balance of $1800 on it (currently a 60% ratio) and you get your limit increased to $6000 you automatically drop your ratio to 30% without paying down the balance, which will increase your credit score.

Keep in mind that these tips are just a starting point to begin raising your credit score, if you have more detailed questions regarding your credit report it’s important to talk to a financial advisor.