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The best way to improve your credit is to never miss a payment on any of your credit accounts, since payment history is the most important factor in your credit score. But keeping debt balances low, demonstrating a lengthy credit history, avoiding frequent applications for new credit, and preventing and correcting inaccurate information on your credit report can also help.
Here are the six most important steps you can take to improve your credit, and answers to common questions—like how long improving credit can take and how to deal with accounts in collections.
Steps to Improve Your Credit
Your credit report shows how well you've managed your financial responsibilities over a certain time period. The information in your credit report determines your credit score, and the most commonly used credit score—the one calculated using the FICO® Score☉ model—ranges from 300 to 850. The higher your FICO® Score, the better (and the same goes for any other scoring model). Negative credit report information drops off over time, but positive information sticks around a bit longer, sometimes indefinitely. To establish a positive credit history and help improve credit scores:
- Pay your bills on time. Because payment history accounts for 35% of your FICO® Score, this should be your top priority when focusing on improving credit. While you can't remove past missed payments, you can take steps to avoid them. And it's never too late to make a commitment to building a spotless payment history.
- Set up a budget, and live within it. After payment history, credit utilization is the second most important factor, making up 30% of your FICO® Score. Experts recommend using no more than 30% of your available credit at any time, but those with the highest credit scores often use much less than that. Ideally, you'll pay off credit card balances completely each month—which likely also means making a budget and avoiding purchases that you can't comfortably afford that month.
- Thoughtfully apply for new credit. Your credit score will suffer if you frequently apply for new credit cards or loans. Lenders may assume you're a risk if you're looking for more credit because you've maxed out the accounts you already have. Only apply for the credit you truly need, especially just before you seek out a mortgage or other major loan, where a drop in your score could cost you an approval.
- Use personal data consistently. Providing complete, accurate and consistent identification on your credit applications helps set up your credit history correctly from the beginning. It also minimizes the chance that your credit file will be incomplete or mixed with another consumer's file. In the worst-case scenario, another consumer could accidentally—or fraudulently—use your personal information to establish credit accounts that end up on your credit report, and if they go unpaid, lower your score.
- Avoid closing your oldest accounts. Length of credit history accounts for 15% of your FICO® Score. Lenders prefer to take on borrowers who have a wealth of experience managing credit, so long credit histories will contribute to high credit scores. If you're tempted to close old credit cards you no longer use, pause and consider keeping them open to maintain a longer credit history. But closing accounts can be advisable in certain circumstances, such as if the card carries a high annual fee or is otherwise problematic for your finances.
- Look to professionals. If you need credit help or if you don't have time to develop your own plan, quality nonprofit credit counseling organizations can help consumers understand credit reports, contact creditors, manage debt and set up budgets.
How Long Does It Take to Improve Credit?
Improving credit won't happen overnight. Since credit history length is a crucial part of the equation, only consistently positive credit behavior will have a major impact. Negative information stays on your credit report for a long time—seven years for late and missed payments, for instance. The effect of these on your score will become less potent over time, but it will take regular positive information to balance it out and improve your score.
Know, too, that going to a credit repair company will not help improve credit scores. A credit repair company can't have accurate credit information taken off your report, even if it's hurting your scores. Everything one of these companies can do is possible to do on your own at no cost. You could end up paying hundreds to thousands of dollars for this unnecessary service.
The Credit Repair Organizations Act is a federal law that prohibits credit repair companies from taking payment from a consumer until the promised service has been provided. It also requires companies to give consumers a written contract explaining the services it will offer and the terms and conditions of payment. You have three days to withdraw from the contract. If you work with a credit repair company—which experts generally caution against—make sure you receive and understand the contract and make sure the company abides by it.
Does Paying Off Accounts in Collections Improve Credit Scores?
In general, paying off an account in collections is a smart move, as it will close the chapter on the delinquent account and end contact with your creditor and debt collector. But the associated missed payments on the account will remain on your credit report for seven years, and the appearance of an account in collections could lead to denials when you apply for certain loans.
When you pay off an account in collections, your balance will drop to zero, and some credit scoring models and versions will not factor this account into your credit score. That's a good thing: It means your credit score will likely increase, because the collection account alone is no longer a negative contributor to your score.
But that's only true for the FICO® 9 and VantageScore® 3.0 and 4.0 credit scores. So if a lender uses an older version to make a lending decision, paid collections accounts will still factor negatively into your score, and your score will not improve because you've paid off your balance.
It's still a positive move to pay off an account in collections. But an improved credit score may not be the No. 1 reason to do so.
Why Improving Your Credit Is Important
A good credit score can be a lifeline when you're focused on achieving certain milestones, like getting a mortgage, car loan or even an apartment. Lenders and landlords look at credit reports as evidence of your financial responsibility. Improving your credit so that it's in the good to exceptional range will give you access to the widest variety of loan and credit card options at the lowest interest rates.
Think of a good credit score as reinforcement, or a bodyguard backing you up when you're ready to make a change or pursue a financial goal. If a relationship ends unexpectedly and you suddenly need to seek out a new apartment, knowing you have good credit can give you peace of mind, knowing you'll easily be able to qualify for a new place.
On the other hand, when your partner says they're ready to buy a home together, already having good credit can put you in a better position to agree that it's the right time—and you'll be able to jump into the housing search with enthusiasm, rather than feeling that you're not yet a strong candidate for a mortgage.
Good Credit Is Worth Working Toward
While it will take time, an improved credit score has the potential to improve your financial life, and potentially your day-to-day life if it can bring you closer to the things you want. Don't focus on the past if you're rebuilding damage credit. Know that it's possible to improve yours starting today, as long as you dedicate time and consistent practice to your goal.
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