Whether you are someone who is trying to build your credit from scratch or someone trying to improve your credit after some missteps, it helps to have some strategies for success. From personal experience, it took some time to improve my credit right out of college and even after some time working. The good news is it can be done and you aren't alone if credit seems to be a foreign language. I'd like to offer you a few credit hacks to maximize your results for a better experience using credit.
The first step is to understand the items that impact your credit and specifically your credit score. The most significant impact on your credit score is your payment history. In fact, payment history accounts for 35% of your FICO Score. Whether you are on time, late, or missed a payment, that information is reported to the national credit bureaus. Experian, Equifax, and TransUnion are responsible for maintaining that information for creditors who rely on it to determine if you're a good credit risk.
If you find that making payments on time is difficult, you could always set up autopay for at least the minimum balance. That way, you are never late. You can also make sure that other bills such as rent, utilities, cellphone, and insurance payments are reported. Each credit bureau has a different process to help you make that happen. You could contact them directly to see how to do that. Every 30 days, your credit score updates, but you must be patient.
A second credit hack is paying down revolving account balances. This accounts for 30% of your FICO Score. Your credit utilization rate is a measure of how much your credit balance is in comparison to the available credit limit you have. As a general rule, you want that percentage to be lower than 30%. So, as an example, if you have a credit card with a $5,000 limit, you would not want to have a balance owed any greater than $1,500.
If you have high balances owed, consider paying down those balances aggressively. You could use a variety of methods. You could pay the card with the highest balance aggressively, while paying the minimum on other cards and keep going until you've paid all of the cards off. You could also pursue debt refinance through consolidating your cards or leveraging the equity in a home if you own one. Every person's situation is different, but the main idea is to reduce the debt in an efficient and effective manner.
A third credit hack is to dispute inaccurate information on your credit report. Did you know that an inaccurate credit report can have a significant negative impact on your credit score? This is why I suggest to clients to obtain a free credit report once a year by visiting www.annualcreditreport.com and reviewing it. In 2021, an estimated 23.9 million U.S. residents age 16 or older (9% of the population) experienced identity theft over a 12 month period. Derogatory accounts can drag your score down and make obtaining new loans and credit cards more challenging.
Review your reports for any information you don't recognize. If you find anything that is inaccurate, follow the dispute process with the credit bureaus. Disputes can be filed with each of the three credit bureaus online, via mail, or over the phone. The details for dispute can be found below.
Equifax
Online: www.equifax.com/personal/credit-report-services/credit-dispute/
By phone or mail: Call the phone number shown on your credit report or call (866) 349-5191. Visit www.equifax.com/personal/contact-us/ to find the current address you can mail your dispute to.
Experian
Online or by mail: www.experian.com/disputes/main.html to dispute online or get instructions for how to dispute by mail.
By phone: Call the phone number shown on your credit report or call (888) 397-3742.
TransUnion
Online: dispute.transunion.com
By mail or phone: Visit www.transunion.com/credit-disputes/dispute-your-credit/mail-or-phone for instructions on how to dispute by mail or phone, or call (800) 916-8800, Monday – Friday 8 a.m. 11 p.m. ET, Saturday and Sunday 8 a.m. – 5 p.m. ET to dispute over the phone.
The fourth and final hack is mainly for those who are new to building credit. What if you don't have a credit history? What is the best way to begin to establish credit? If it is possible, become and authorized user on another person's card. Perhaps you can ask to become an authorized user on your parent's credit card. It would have an immediate impact for you. Obviously, it depends on how the credit card is managed. If there is a positive payment history and low credit utilization, it would be a perfect opportunity to boost your own credit.
This hack is good for individuals who don't have a credit history, those with relatively little credit history, or even for those who have been hurt by negative entries on their credit reports such as late payments, bankruptcies, or foreclosures.
Hopefully, you have found these ideas to be helpful. As always, if you want to discuss these or any other financial topics which may affect you, feel free to reach out to us here at Kobo Wealth Strategies. Visit www.kobowealthstrategies.com and click on Make an Appointment at the top right.