9 Strategies for Improving Your Credit Rating | Entrepreneur (2024)

In his book Dirty Little Secrets, bestselling author and personal finance expert Jason R. Rich reveals the secrets of credit reports and ratings and explains what you can do to improve both. In this edited excerpt, the author outlines nine steps you can take to improve your credit and increase your credit scores.

Some of these strategies may seem like common sense; however, they represent solutions to the most common reasons why the typical person develops a less than perfect credit rating.

1. Pay your bills on time, every time. This strategy may seem extremely obvious. However, late payments are the most common piece of negative information that appears on people's credit reports and is often responsible for significant drops in their credit scores. When it comes to loans and credit cards, it's vital that you always make at least the minimum payments in a timely manner, each and every month, with no exceptions.

2. Keep your credit card balances low. One factor that's considered in the calculation of your credit scores is your credit card balances. Having a balance that represents 35 percent or more of your overall available credit limit on each card will actually hurt you, even if you make all of your payments on time and consistently pay more than the minimum due. Make timely monthly payments on the balance that are above the required monthly minimums.

If you have an average or better credit rating, consider asking your credit card issuers to increase your credit limits. However, do not utilize this extra credit by making more purchases. By increasing the amount of credit that's available on your credit cards while working to reduce your debt, you will improve your credit utilization and help to increase your credit scores.

3. Don't close unused accounts. One of the factors considered when calculating your credit scores is the length of time you've had credit established with each creditor. You're rewarded for having a positive, long-term history with each creditor, even if the account is inactive or not used. So avoid closing older and unused accounts. Instead, simply put those credit cards in a safe place and forget about them. Although you don't want to have too many open accounts, having five or six credit card accounts open, even though you only actually use two or three cards, can be beneficial.

4. Only apply for credit when needed, then shop for the best rates. Applying for a retail store card you're going to use once or twice, when you could just as easily use an existing credit card, might not be the best idea. Over the long term, if you maintain a balance on a store credit card, for example, the fees and interest charges are often much higher than a major credit card.

5. Correct inaccuracies on your credit reports, and make sure old information is removed. One of the fastest and easiest ways to quickly give your credit scores a boost is to carefully review all three of your credit reports and correct any erroneous or outdated information that's listed. If you spot incorrect information, you can initiate a dispute and potentially have it corrected or removed within 30 days.

6. Avoid too many hard inquiries. Every time you apply for a credit card or loan, a potential creditor/lender will make an inquiry with one or more of the credit reporting agencies (Experian, Equifax, or TransUnion). This inquiry information gets added to your credit report(s) and will typically remain listed for two years. If you have multiple inquiries in a short period of time, whether or not you get approved for the loan or credit you apply for, this can dramatically reduce your credit scores.

7. Avoid bankruptcy, if possible. In terms of your credit reports, credit rating, and credit scores, filing for bankruptcy is one of the absolute worst things you can do. If your credit scores haven't already plummeted as a result of late payments, missed payments, charge-offs, and defaults, when the bankruptcy is listed on your credit reports, you'll notice a large and immediate drop in your credit scores. Furthermore, that bankruptcy will continue to plague your credit reports for up to ten years and could keep you from getting approved for any type of loan or credit during that period.

8. Avoid consolidating balances onto one credit card. Unless you can save a fortune in interest charges and fees by consolidating balances onto one credit card, this strategy should be avoided. One reason is that maxing out any of your credit cards will detract from your credit scores, even if you make on-time payments. Assuming the interest rate calculations make sense, you're better off distributing your debt over several low-interest credit cards. An alternative is to pay off high-interest credit card balances using another type of debt consolidation loan or by refinancing your mortgage with a cash-out option.

9. Negotiate with your creditors or collection agencies. Contrary to popular belief, your creditors and lenders aren't your enemies. Your creditors are in business, and the nature of business dictates that they strive to earn a profit. When you don't pay your bills, this impacts a creditor's ability to do business and impacts its bottom line. Many creditors are willing to be understanding of difficult financial situations, especially if you openly communicate with them in a timely manner.

In other words, instead of skipping a handful of payments or defaulting on a loan, contact your creditors and lenders as soon as a problem arises and negotiate some form of resolution that's within your financial means. Depending on the level of your financial difficulties, your creditors may be willing to assist you.

9 Strategies for Improving Your Credit Rating | Entrepreneur (2024)

FAQs

How can I improve my credit score with 9 points? ›

  1. Pay credit card balances strategically.
  2. Ask for higher credit limits.
  3. Become an authorized user.
  4. Pay bills on time.
  5. Dispute credit report errors.
  6. Deal with collections accounts.
  7. Use a secured credit card.
  8. Get credit for rent and utility payments.
Mar 26, 2024

What are five 5 tips for improving your credit score? ›

Here are five credit-boosting tips.
  • Pay your bills on time. Why it matters. Your payment history makes up the largest part—35 percent—of your credit score. ...
  • Keep your balances low. Why it matters. ...
  • Don't close old accounts. Why it matters. ...
  • Have a mix of loans. Why it matters. ...
  • Think before taking on new credit. Why it matters.

Which strategy helps you improve your credit rating? ›

It's typically best to pay off all your balances every month, if possible. Doing so helps keep the amount you owe low and shows lenders that you can make on-time payments. Hard inquiries. Hard inquiries occur when a lender or creditor checks your credit after you apply for a new line of credit.

What increases credit score most? ›

Paying your bills on time is the most important thing you can do to help raise your score. FICO and VantageScore, which are two of the main credit card scoring models, both view payment history as the most influential factor when determining a person's credit score.

How to raise credit score 50 points in 30 days? ›

There are several ways to raise your credit score in 30 days. Reducing your credit utilization is one of the fastest ways to raise your credit score, and you can do it by paying down debt, spending less, paying your bill more often or asking for a higher spending limit.

Can I raise my credit score 200 points in 30 days? ›

While you can improve your credit score by 200 points in 30 days, it is also essential to remember that the improvement is based on your current credit status and mix. Some might experience quicker improvements, while others may need more time based on their unique credit histories and financial situations.

What are the 5 C's of good credit? ›

The five Cs of credit are important because lenders use these factors to determine whether to approve you for a financial product. Lenders also use these five Cs—character, capacity, capital, collateral, and conditions—to set your loan rates and loan terms.

What are the 5 C's of credit score? ›

Character, capacity, capital, collateral and conditions are the 5 C's of credit. Lenders may look at the 5 C's when considering credit applications. Understanding the 5 C's could help you boost your creditworthiness, making it easier to qualify for the credit you apply for.

What habit lowers your credit score? ›

Making late payments, even a single day late, can significantly affect your credit. This becomes especially true if you make a habit of paying late. Some lenders or credit card companies will charge you a fee for being a single day late and could cut you off from making further purchases on the account.

How do I improve my credit rating fast? ›

Paying your accounts on time and in full each month is a good way to show lenders you're a reliable borrower, and capable of handling credit responsibly. Old, well-managed accounts will usually improve your score - although be sure to read about the potential impact of unused credit cards.

How to fix your credit yourself? ›

Here are 11 steps you can take on your own to steer your credit in the right direction.
  1. Check Your Credit Report. ...
  2. Dispute Credit Report Errors. ...
  3. Bring Past-Due Accounts Current. ...
  4. Set Up Autopay. ...
  5. Maintain a Low Credit Utilization Rate. ...
  6. Pay Off Debt. ...
  7. Avoid Applying for New Credit. ...
  8. Keep Unused Credit Accounts Open.
Apr 22, 2023

How to improve credit score in 30 days? ›

Steps you can take to raise your credit score quickly include:
  1. Lower your credit utilization rate.
  2. Ask for late payment forgiveness.
  3. Dispute inaccurate information on your credit reports.
  4. Add utility and phone payments to your credit report.
  5. Check and understand your credit score.
  6. The bottom line about building credit fast.

What is the no 1 way to raise your credit score? ›

Get a Handle on Bill Payments

That is why, for example, it's better to have paid-off debts (such as your old student loans) remain on your record. If you paid your debts responsibly and on time, it works in your favor. So a simple way to raise your credit score is to avoid late payments at all costs.

What is the #1 way to build your credit? ›

To build credit, it's important to practice good financial habits and monitor your credit routinely. One way to build credit is by applying for and responsibly using a credit card. In some cases, paying other bills, like rent or utilities, can help boost your credit scores.

What is the #1 way to build a good credit score? ›

Pay bills on time and in full

In fact, payment history is the most important factor making up your credit score. Your credit score considers whether you make payments on time or late and if you carry a balance month to month or pay it off in full.

How to add 10 points to your credit score? ›

To raise your credit score by 10 points, you can dispute errors on your credit report, pay your bills on time and lower your credit utilization. Credit scores rise and fall based on the contents of your credit report, so adding positive information to your report will offset negative entries and increase your score.

How did my credit score go up 10 points? ›

Common reasons for a score increase include: a reduction in credit card debt, the removal of old negative marks from your credit report and on-time payments being added to your report. The situations that lead to score increases correspond to the factors that determine your credit score.

How can I raise my credit score 8 points? ›

You can improve your credit score by opening accounts that report to the credit bureaus, maintaining low balances, paying your bills on time and limiting how often you apply for new accounts.

How can I raise my credit score by 10? ›

10 Ways to Improve Your Credit Score
  1. Pay your bills when they're due. ...
  2. Keep credit card balances low. ...
  3. Check for errors. ...
  4. Make a plan to pay down debt. ...
  5. Keep using your credit (responsibly.) ...
  6. Don't open multiple credit accounts in a short period of time. ...
  7. Don't close credit card accounts.

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