After years of struggling with credit issues, you’ve put a plan in place to budget, pay your debts on time, and spend wisely. You’re doing everything you can and you’re ready for a fresh start, but your credit rating still isn’t where you want it to be.
Here are some tips to improve your credit score.
1) Request an increase in your line of credit. Your credit utilization ratio – the percentage of available credit you use – represents 30% of your FICO score. By increasing the amount of unused credit, you can increase your score. However, before doing this, ask if the issuer will perform a credit check. Note that if your credit card issuer requires a credit check before granting a raise, you could potentially lower your score. When a potential lender asks for a credit report (because you voluntarily applied for credit), is that considered a “difficult”? survey, and it could knock you about five points off your FICO score. If you have a short credit history (few accounts) and several serious requests have been made over a long period, you are more likely to lose a few points. But if you have a long credit history and relatively few serious inquiries, you may not be affected at all. A “software”? inquiry, which is when you pull your own credit report, does not affect your credit score.
2) Check your credit report. This has been said many times by financial experts, but it’s important advice that many people don’t follow. In a recent study, the Federal Trade Commission found that up to 42 million Americans have errors in their credit reports. And some whose credit report errors were corrected saw their score change by 25 to 100 points. If you haven’t seen your credit report recently, go to annualcreditreport.com to get it now – it’s free.
3) Ask for a secured credit card. If you don’t have a credit card, perhaps because you paid off your debts in a Chapter 7 bankruptcy, you can rebuild your credit this way. A secured credit card requires you to make a cash security deposit with the issuing bank. This amount becomes your line of credit. After making timely payments for about one to two years, you may be eligible to upgrade to an unsecured card. But before considering this option, make sure the bank reports the payments to the three major credit bureaus (Equifax, Experian, and Trans Union). Try to find a card with low fees and favorable terms. To help you find a card that’s right for you, check out Bankrate.com’s handy guide list of secure credit card issuers.
4) Pay off your balances. Another way to increase your credit utilization ratio is to completely pay off your debt. Additionally, having more credit available will cause potential lenders to view you as having less credit risk.
A word of warning: Should debt settlement be part of your “deleveraging”? plan, be aware that a canceled debt over $600 is considered miscellaneous income by the IRS. Therefore, it will be reported to the IRS and you will receive Form 1099-C, Cancellation of Debt. The amount from this form must be included in your tax return as taxable income. This means that you are expected to pay taxes on the forgiven debt. Mortgage Debt Forgiveness Act). So keep an eye on your mail.