Joshua Heckathorn runs Creditnet.com, a free resource for anyone who wants to learn more about credit and compare hundreds of the best credit cards online. He resides in Seattle and holds an MBA and B.S. in finance.
Great credit takes years to build, but one mistake can unfortunately destroy it overnight. The good news is that no matter how bad your credit may seem, the only thing preventing you from getting back on top again is yourself. You have the power to start making changes for the better right now.
Here are 5 steps you can take today to improve your credit:
1.) Lower Your Credit Utilization Ratio
About 30% of your FICO score depends on how much you’re spending of your total available credit limit from all cards combined. For example, your credit utilization ratio would be 50% if your total available credit is $20,000 and your monthly spend totals $10,000.
50% is way too high. In fact, you want this ratio to at least be under 30%. Keep your utilization under 10%, and the credit-scoring models will love you. If your credit issuers won’t increase your credit limits, you might want to consider increasing your available credit by comparing the best 0% interest credit cards online and adding a new card to your wallet.
2.) Catch Up on Overdue Accounts
Payment history accounts for the largest portion of your FICO scores (35%), so making on-time payments will have the greatest overall effect on your credit scores in the long run. If you’re behind on any payments, catch yourself up immediately and start building positive payment history once again.
3.) Piggyback on Someone’s Good Credit
Parents have been helping their kids build credit for years by adding them as authorized users on their credit cards in good standing. This method still works and is a great way to give your credit scores an immediate boost. If you don’t have a parent to help you out, consider talking to your spouse, siblings, or other close relatives that might be willing to add you as an authorized user.
4.) Clean Up Your Credit Reports
The majority of credit reports have errors. Get your free credit reports from annualcreditreport.com, review them carefully, and get rid of any inaccurate or erroneous information.
5.) Don’t Close Unused Credit Cards
You may come across old credit cards as you’re reviewing your credit reports, and the temptation might be to immediately call up your credit issuers and close them. Don’t do this before further investigating how closing the cards could negatively affect both your credit utilization ratio and your length of credit history. In fact, I would recommend leaving all no annual fee credit cards open to preserve both your credit limit and the average age of your open accounts. If you have old cards with an annual fee and you’re not using them at all anymore, then it might make economic sense to close the card in spite of the negative effect on your credit scores. The decision is up to you.