“Improve my credit” — it’s a common money resolution, and for good reason. Credit scores and credit reports are used for everything. Need a loan? They check your credit. Renting an apartment? They check your credit. Getting car insurance? Yeah, they check your credit, too.
Fortunately, fixing or improving credit is fairly straightforward. Unfortunately, it takes time. Most bad stuff doesn’t come off your credit report the second you change your ways.
Truly awful financial choices, such as filing for bankruptcy or defaulting on a mortgage, can take between seven and 10 years to be removed from your credit. But minor infractions have easier fixes, and you can get to a good place sooner rather than later. Here’s a crib sheet to fixing your credit in 2018.
- Review your credit reports. You can pull your credit history once every 12 months via AnnualCreditReport.com for free. You’ll get three reports, one from each of the major credit bureaus.
- Check the reports for errors, including loans or loan applications you don’t recognize, inaccurate balances, or loan status and wrong personal info. Errors are sometimes just errors. Other times, they’re signs of identity theft. In either case …
- Dispute any errors with the credit bureau. You can do so online or by mail. There are usually directions on the credit report. If you suspect identity theft, go here.
- Pay down credit card balances to improve your debt-to-credit ratio, a.k.a. your credit utilization ratio, a measure of how much debt you have versus how much credit is at your disposal. Bonus tip: Lowering credit card debt is the quickest way to boost a score, since those balances get reported every 30 days or so.
- Keep your debt-to-credit ratio below at least 30% in total and on each credit card you have so your score stays in shape. Why so low? It makes you seem less risky to the banks.
- Set up auto-pay so you never miss a payment again. Missed payments are the number one credit score killer — and they’re subject to that seven-year rule, meaning they won’t come off a report as soon as you make good.
- Pay off debt in collections, assuming you actually owe it. Collection accounts take time to age off your credit report, but scoring systems treat unpaid collections worse than paid ones.
- Get a loan out of default. It won’t negate the missed payments that preceded that delinquent status, but credit scoring models are nicer to loans that are current.
- Limit new credit applications while you wait for your score to improve. Credit inquiries ding your score and the last thing you need is another loan to manage anyway.
- Monitor your progress. Websites like Credit Karma or Credit Sesame as well as credit card issuers provide you with free monthly summaries. Plus, there’s credit monitoring and identity theft insurance.
Getting out of debt is easier said than done, we know. But we’ve got some tips for eradicating what you owe right here.