If you want to improve your credit score, it’s important to be patient. It won’t happen immediately.
A good score comes from a healthy pattern of behavior, and you can only establish that pattern with time.
The encouraging part about credit scoring is that, in most cases, new behavior matters more than old behavior. So start looking forward now, and go slowly, so you can establish firm and long-lasting credit habits.
Here’s what you can do:
Make sure you pay your bills on time.
Several months of recent on-time bill payments can have more of an effect on your score than a late payment that occurred several years ago. If your credit score has suffered recently because of late payments, try signing up for payment alerts or arrange for automatic payments to your credit cards or loans.
Resolve account issues before you end up in collection. If you’re having trouble making payments to your accounts, it’s important not to wait. Review your budget and funnel more money toward your debts. If you’re still having trouble, contact your lenders and talk to them about your economic hardship — they’ll be willing to work with you to put together a new payment plan.
The longer you wait, the more damage gets inflicted on your score. A 30-day late payment won’t hurt your score as severely as a debt that’s gone into collection. If you wait even longer, the financial institution may charge-off the debt, posting the amount as a loss because of a failure to collect from the consumer.
Negative financial records like this will stick around for seven years, influencing future lenders as they consider your applications. Some bankruptcies will stay on your record for ten years. Don’t wait. Do what you can now, and ask for help.
Pay down your debts. The less debt you have on your credit cards, the more your credit score will improve. The amount of credit you use counts for 30 percent of your score. Your score takes into account not only the amounts you’ve borrowed, but also the percentage of credit that you’re currently using, compared with your credit limits and your original loan amounts.
Your credit card debt has more of an effect on your score than your loan debt (and probably has higher interest rates too), so pay down your credit card debt first. Aim for a target percentage below your current balance, and each time you reach that target, create a new goal. Restructure your budget so that a greater percentage goes toward your credit card payments, and watch over time as your credit score rises.
Don’t take on any new debt. When you’re trying to improve your credit score, adding more debt to your existing debt is counterproductive. Put your cards away for now, and you’ll thank yourself in the long run.
Avoid opening new accounts. If you open several new accounts at once, it can lower your score. Needing large amounts of credit in a short amount of time can indicate to financial institutions that you’re a credit risk, and your score responds in turn. Also, having too many accounts overall can hurt your score. Err on the safe side: open only the accounts that you need, and make sure plenty of time elapses between account openings.
Michael Camacho is the president and chief executive officer of Personal Finance Center. He has more than 18 years experience in retail banking and with financial institutions in Guam and Hawaii.