We often hear, raise your credit score and you’ll end up saving money. That is because those who have good credit will pay a lot less for mortgages, cars, and credit cards. Fixing your credit can be a long process, but if you start now you’ll be able to raise your score 100 points by the end of 2017 and then, in turn, save big on everything else.
According to experts, increasing your score by 100 points, you can save thousands per year.
Here is a step-by-step guide to fixing your credit score in 2017:
Step 1: Assessment
Your very first step should be obtaining a credit score and studying it to understand what you’re up against. Once you know where you are, you can set goals to achieve a higher rating.
So what exactly causes your score to drop?
On your credit report, there should be “reason codes” so you can determine what is affecting your score. These include:
- Serious delinquency
- Time since delinquency is too recent or unknown
- Public record or collection filed
- Ratio of balances to credit limits on revolving accounts is too high
- Length of time accounts have been established is too short
- Too many accounts with balances
- Amount owed on accounts is too high
Re-aging delinquent accounts
If you’ve had a history of missing payments and without re-aging your account, it will always be reported as delinquent, even if you resume making payments on time. Make a couple payments on time before contacting your creditor about re-aging.
Re-aging can instantly improve your score.
Pay on time – even if you need help
It can take six months of on-time payments before seeing any real difference in your score. Set up a system where you’re ensured to paying on time. This may include auto pay from your checking account on payday or setting reminders on your phone or calendar.
Because it does take time for on-time payments to affect your credit score, it’s important you start this as soon as possible.
When you owe too much
Another main factor of reason codes is the amount of debt you’ve incurred. They look at the amount of credit you have versus the amount used, known as the utilization ratio. The reason for this is credit bureaus are looking for spending patterns that are unsustainable. For example, if you’re spending more money than you earn each month, you will eventually reach a point in which you’ll have no more available credit.
Fixing this will change your score immediately. If you have savings, use some of this to pay off your accounts. In the end, you’ll be saving on interest owed each month. If you don’t have savings or the money to cover your credit card balances, consider a personal loan or a home equity loan. Lowering your credit card (revolving) debt will drop your utilization ratio.
But make sure you don’t use your credit card until you pay off your new loan.
With these small changes, you’ll be able to improve your credit score before the year’s end.