This can't be overstated: Having a good credit score is huge. Banks, lenders, car dealers, employers and landlords now check credit scores to determine your eligibility to get a loan, a job, and even a roof over your head.
No matter how bad your score might be right now, you can raise it and get your finances back on track. Credit scores sit on a scale between 300 and 850, and generally a score higher than 750 is most desirable.
If your credit score needs work, here's a four-point plan to raise it as quickly as possible.
1. Review your credit history
Credit reports often contain errors that can mess with your score, and keeping track of your credit reports allows you to make sure no new errors appear as you begin to fix your scores and repay your debts.
Request your free annual credit reports from each of the three major credit reporting bureaus — Equifax, Experian and TransUnion — and review them for any outdated or missing information.
Incorrect information may include loans you already paid off or anything else that doesn't look quite right. Keep in mind that there are people maintaining your information, and people make mistakes.
Then, go on the offensive. Call all of the companies on your credit report and dispute every error. Ask for proof of any charges you know are incorrect. Unverified credit lines should drop off your report completely once you give notice that they are wrong.
2. Fix the paper trail
The next step to raising your credit score is to call in the professionals.
If you have a stack of credit cards and you've run up significant credit debt, then you might need to hire a legal service to track down documentation on your behalf, so you can dispute all the errors efficiently and completely.
Many creditors fail to keep proper records, especially in countries/states with strong protections for consumers. This means your attorney will be able to weed out debts without good supporting documentation on file.
Once this is done, you'll have to wait about a month to see the effect on your score. You might be surprised to see the magnitude of the change in your score just from fixing the errors.
3. Get a secured credit card
Banks are reluctant to give you a new credit card if your credit score is low, but they are usually more than happy to give you a secured card, which is essentially training wheels for credit.
A secured card works like this: You make a deposit (maybe $500) and the bank holds that money as collateral. Your new card then has a limit of $500. You use this card like a regular credit card for a few months, making sure to pay it off in full every month.
In effect, you're rebuilding your credit score by proving to your bank that you are trustworthy and that you repay your debts.
After a few months,, if the bank is satisfied with your repayment performance, it will give you back the $500 collateral and give you a new regular credit card. This tactic will build your credit quickly and help you drive up your credit score.
4. Settle your credit debt
Finally, sit down with your new, accurate, and up-to-date credit report and start calling the companies with delinquent or collection items in your file.
Ask to speak to a credit representative, and follow this script: “I don't have enough money to pay in full, but I'll give you X to settle it right now.” Many creditors with “impaired debt” (aka “delinquent debt” or “in collections”) will gladly take 50% of the amount you owe.
When you start paying off your credit card debt, you're lowering your credit utilization — the amount of your available credit you're using. Credit reporting agencies penalize high credit utilization, and it lowers your credit score.
The more you cut down your debt, the lower your credit utilization, and the higher your credit score. Keeping credit utilization at 30% or below is essential to keeping your credit score high. Once you've paid off your debt, never use more than 30% of your available credit.