Why Isn’t My Credit Score Getting Better?
Your credit score is sagging, and you’re not sure what to do to get it in shape. You’re particularly worried since you’re about to apply for a credit card or student loan, or refinance your mortgage.
The good news is there are concrete steps you can take to improve your credit score, which could ultimately help you save thousands of dollars in interest by getting the best deal possible.
7 steps to improve your credit score
Search your credit report for errors and dispute mistakes. The Fair Credit Reporting Act requires each of the big three credit reporting agencies — Equifax, Experian and TransUnion — to provide you with a free copy of your credit report, at your request, every year. The credit reporting agency that supplied your report and the organization that provided the information are responsible for correcting inaccuracies. You should contact both. But if your efforts fail, you might have to consult a lawyer. Your credit worthiness is too important.
Pay bills on time. Your payment history, including delinquent payments, is the single biggest contributor to your credit score, accounting for 35% of the total, according to FICO.
Budget. Calculate income and expenses, and determine how much you have to pay down debts.
Track your spending. Find areas where you can cut back and pay off debt. And keep an eye on how much of your available credit you’re using. Your credit utilization rate is the second most important factor in your credit score, accounting for 30%.
Focus on eliminating small debts first and work your way up to paying off bigger debts. Or, pay off the debt with the highest interest rate first. Determine what’s best for you.
Tackle your debts. If you’re negotiating with a debt collector, check your budget and cash flow as a starting point to reaching a repayment agreement. You may also consider getting a debt consolidation loan.
Consider a credit counselor. A credit counseling organization with a good reputation can offer you advice on money and debts, help create a budget and provide money management workshops, according to the Consumer Financial Protection Bureau, a U.S. government agency that makes sure banks, lenders and other financial companies treat consumers fairly.
“It’s not the first resort,” said Gerri Detweiler, Education Director at Nav Inc. and a credit expert, author and speaker. But for someone who feels they just aren’t making headway on the debt treadmill, “that’s a good time to talk to a credit counselor,” she said.
Why isn’t my credit score higher?
Your FICO credit score ranges from 300 to 850. A lower number signifies that you may be a greater credit risk. A number above 670 is typically considered a “good” credit score, while anything over 740 is recognized as “very good,” and scores of 800 and above are deemed “excellent” by creditors.
Your scores could be spinning in place due to inaccuracies, which need to be removed. Or they could be affected by excessive debt and too many accounts with balances.
Don’t wait until you request a loan or new credit card to check your credit report. Identity theft is also a serious threat to your credit score.
The identities of as many as nine million Americans are stolen each year, according to the Federal Trade Commission. Identity thieves can do a number of things in your name, including rent an apartment, file tax returns, or get a credit card or telephone account. You might not even be aware of the theft until you get your credit report or a credit card statement and see charges you didn’t make, or until a debt collector calls you.
To prevent identity theft, consumers should monitor their credit reports at least annually, and review bank and credit card statements regularly. Errors should be reported immediately.
Be vigilant and check your score often so you won’t be caught off guard at the eleventh hour. And you may even be pleasantly surprised, thanks to some recent developments.
Credit scores on the upswing
In 2017, credit reporting firms said they would remove tax liens from consumers’ credit reports and stop reporting tax lien data. Civil judgments are also being taken off credit reports — all actions that could help boost credit scores. However, public bankruptcy information will still be reported.
In December, Experian said it would allow consumers to use cell phone and utility bill payment histories to bolster credit scores. Consumers with scores between 580 and 669 would benefit the most from its Experian Boost online platform, the credit reporting firm said.
And in October, FICO unveiled a new scoring system called UltraFICO in which consumers grant access to bank statements, including the length of time the accounts have been open and savings history.
The UltraFICO Score would be suitable for consumers falling in the “gray area” of credit scores (upper 500s to lower 600s), FICO said, or just below most lenders’ comfort zone for loans. The aim is to ease approvals.
The bottom line
For any consumer, it pays to have the highest credit score possible. Paying bills on time, managing your credit, checking your score and spending responsibly are keys.
It’s also critical to fix credit report errors before they undermine your creditworthiness. But it’s up to consumers to spot them and address them.