This guest post was written by Jason Bushey. Jason is a personal finance blogger and consultant.
If your New Year’s Resolution of improving your credit score already feels like it’s hit a dead end, fear not – there are some simple ways to get your credit on the right track in 2013.
Improving your credit can go a long way towards lowering your interest fees on big-ticket loan items you might have your eye on, including home loans car loans. A strong credit score is made up of multiple factors, but there are some simple practices that are easy to follow that will improve your credit over the upcoming year.
The very first thing you can do to improve your credit in 2013 is apply for a new credit card. If you have poor credit, there are some credit cards for bad credit available for consumers in your exact situation.
Bad credit credit cards can improve your score in a number of ways, the first being that a new line of credit can have an immediate positive impact on your credit score. How so?
Well, new credit lines make up 10% of your FICO scores. Along those same lines, the amounts you owe on your total available credit line make up another 30% of that score. Basically, your credit utilization ratio – the amount of credit debt you owe in relation to your total available credit – should always remain under 30% and in a perfect world it would be less than 10%.
When you open a new credit card account, right away you’re lowering your credit utilization by adding total available credit to your profile. So the impact is two-fold: you’re adding new credit and lowering the amounts you owe. This should lead to a modest boost in your credit score in 2013.
However, the biggest factor determining your credit score is your payment history. On-time payments and payment delinquencies make up a full 35% of your FICO scores, so the number one thing you can do to improve your credit score in 2013 is make paying your credit card bill on time each month a priority.
Not only will on-time payments improve your credit score exponentially – especially those made on your new credit card – but consequently you’ll be lowering your credit utilization ratio, too. That’s another win/win when it comes to rebuilding your credit, and is of course a simple practice to understand.
The third thing consumers can do to improve credit scores in the upcoming year is dispute old debts. This means obtaining your credit report – we’re all allotted one free report per year by law – and combing through for things that don’t look quite right.
If you see something fish-y or odd on your credit report, then the next step to take is to send the credit reporting agency (CRA – this would be either Equifax, TransUnion or Experian) a debt validation letter. This is a simple, to-the-point letter asking the CRA to verify or validate this debt as legitimate.
The CRA then has one month after receiving the letter to respond. If they can’t validate the debt, that negative blemish will be wiped from your report. If they do validate the debt but you’re still not sold that this debt is legitimate, you can follow up with a dispute to the creditor reporting the debt to the CRA.
Remember – the key to disputing errors on your credit report is through documentation. Don’t pick up the phone! Draft a letter, send it off and await the response. Removing errors on your credit report is one of the most important things you can do to improve your credit score in 2013, and while it might seem irksome to write letters and await responses from big agencies, think of the hundreds or even thousands of dollars you can save in interest with your healthy new credit score.
If you respond more to lists, here are three ways to improve your credit score in 2013:
- Apply for a new credit card.
- Make on-time payments each month, no matter what!
- Obtain a copy of your credit report and dispute, dispute, dispute!
An active, responsible consumer with multiple forms of credit who ALWAYS pays on time is a consumer with great credit. Rebuilding your credit score might sound complicated, but the road to excellent credit is simple if you make it a priority. And if you have goals of owning a home or buying a new car, it’s imperative that you have a good credit score moving forward.