Personal Insights

How To Start Fixing Your Credit Today

Cleaning up your credit takes time, but you can start cleaning it up right away.

Most lenders report information about their accounts with consumers to three major credit bureaus. Bureaus use proprietary calculations to analyze the information in your credit history with that bureau to create your credit score. Your credit score summarizes your creditworthiness. Lenders use your score to decide whether you qualify for credit and determine your interest rate. There are several types of credit scores, and the scores can vary by source, however FICO® Scores may be the type most people know. Your FICO® Score can range from 300 to 850.

If your credit score isn’t where you want it to be, you can work to increase it. Here are five steps you can take to improve your credit.

1. Check your credit report for errors

There are three main credit bureaus: Experian, Equifax, and TransUnion. You’re entitled to one free copy of your credit report per year from each bureau. Your credit score is generally based on information in these reports, as reported by furnishers such as banks and credit card issuers. Check for errors. If there are any, communicate them to the bureaus that produced the reports with the errors. You should also consider contacting the furnisher that reported the incorrect information. Bureaus generally have 30 days to investigate your report and must respond to you within five days of finishing their investigation. Correcting errors on your credit reports is an easy first step that should improve your score. As you work to improve your score, continue checking your reports.

Tip: Scatter your inquiries. If you request a free copy of your credit from a different bureau every four months, you can monitor your credit three times a year. To order your free credit report call (877) 322-8228 or visit www.annualcreditreport.com.

2. Pay your bills on time

Whether or not you pay your bills on time is usually the single biggest factor negatively affecting your credit score. Make sure you pay at least the minimum on your credit card and other bills on time each month to avoid hits to your score.

If you have trouble remembering to pay, set up payment reminders a few days before a payment’s due date. If you are having trouble making your payments, reach out to your creditors. You may be able to change the date of the month your bill is due, or work out a personalized payment plan.

3. Pay down debt

Another important factor in your overall score is your credit utilization ratio. This ratio compares the total amount of revolving credit you have available to the amount of credit you actually use. For example, if you have three credit cards with a combined credit limit of $15,000 and you have a combined $10,000 balance across those cards, your credit ratio is 67 percent.

A good rule of thumb is to keep your credit utilization ratio below 30 percent. Work toward paying off the total amount on your credit card balances.

Tip: Often times, people paying down credit card debt are tempted to close a card once the balance is paid. However, closing the account could raise your credit utilization ratio. Leaving it open and not adding new charges, on the other hand, may lower it—which is a good thing. Consider leaving the account open, just make sure to monitor the accounts for fraud and remember any spending requirements or fees when you are making this decision.

4. Use a secured credit card

If you’ve already taken the steps above and have worked to pay down your debt and improve your payment history, but your credit score still isn’t where you want it, consider a secured credit card. With a secured credit card, you deposit funds with the issuing bank, which serve as collateral for the card. The deposited funds also determine your credit limit. For example, if you deposit $200, your secured credit card limit would be $200 (less any applicable fees). The card then functions like a regular credit card. Because these cards are secured, they are usually easier to qualify for than other types of credit. Keeping up with your payments on this card should help improve your score.

5. Understand how and when your score may be affected

When applying for or obtaining new credit, such as a new credit card, the lender will request a credit report from a bureau. This is known as a “hard inquiry.” This type of credit inquiry may lower your credit score slightly. But a new line of credit, such as a consolidation loan or low-balance credit card may be worth the drop, depending on your personal goals. Consult a financial advisor for advice if you’re unsure.

Improving your credit score takes effort, but by taking these steps you should start seeing improvements. By continuing these steps over time, you’ll be well on your way to significant progress.

For more tips on managing debt, visit regions.com/insights.