Do you want to improve your credit score over the course of the next 12 months and eventually achieve an excellent credit score?
It’s not necessarily going to be easy. Only about 20 percent of Americans have an excellent credit score, and many of them have spent years perfecting their score to get it above 800. It typically takes at least a few years to bring a credit score up into the excellent range.
If you plan on doing it sooner than that, you need to know how to get an excellent credit score first. There are some relatively simple steps you can take to bring your score up dramatically in just one year, as long as you’re 100 percent committed to doing it.
Take a look at some ways to get a perfect credit score in just a year below.
Find Out What Your Credit Score Is
Before you can begin making improvements to your credit score, find out what your credit score actually is.
This might seem like common sense. But amazingly, about 30 percent of Americans have no idea what their credit score is. A lot of them could be doing things to improve their scores, but since they don’t know them, they aren’t putting themselves in a position to earn an excellent score.
Once you know what your credit score is and how far from excellent you are, you can start your journey towards perfection.
Understand How Your Credit Score Is Formulated
In addition to finding out what your credit score is, take the time to learn how your credit score is formulated by the credit bureaus. This will help you understand why your credit score isn’t higher at this time.
About 35 percent of your credit score is calculated based on your payment history. About 30 percent of it is based on credit utilization.
About 15 percent of it accounts for the length of your credit history, and 10 percent is based on recent credit inquiries. The final 10 percent, meanwhile, is based on how many different types of credit you have on your report.
The credit bureaus take these factors, put them into a blender, and spit out your credit score to paint a clear picture of how you’ve used credit over the years.
A higher score reveals that you’ve been responsible with credit, while a lower one indicates you could stand to make some improvements to your credit use.
Understanding all this will allow you to see how to get an excellent credit score.
Check for Errors on Your Credit Report
Once you know your credit score and understand how it’s formulated, it’ll almost be time for you to get to work to bring your score up.
But before you do, take a good, long look at your credit report and see if there’s anything on it that you don’t recognize. Do you have any credit cards on it that you didn’t open yourself? Or are there credit inquiries on your report that you didn’t make?
If you find errors on your credit report, you have the right to dispute them immediately. Getting them removed could work wonders for your credit score, and it’ll require very little actual effort on your part.
Figure Out What’s Dragging Your Credit Score Down
If you don’t find any errors on your credit report and your credit score is well below excellent, you’ll need to figure out what’s dragging down your credit score and preventing it from being excellent.
Here are some of the issues that might be plaguing your report and stopping your score from being higher:
- You haven’t paid some of your credit card bills on time
- Your credit card accounts have balances that are too high
- You’ve only had credit cards and other forms of credit for a year or two
- You’ve applied for too many loans over the last year
- You only have one type of credit listed on your credit report
You can’t improve your credit score if you don’t know what’s bringing it down in the first place. Figure it out so that you can attack the problem and make it better.
Make Improvements in Areas That Are Hurting Your Credit Score
After you’ve figured out why your credit score is so low, make it your mission to make improvements to the parts of your credit report that are hurting your credit score the most.
For example, let’s say your biggest issue is that you’re not paying your credit card bills on time every month. Maybe you’re not budgeting properly and giving yourself enough money to make payments on time. Or maybe you’re simply forgetting to pay down your credit card balance month in and month out.
Whatever the case, make it a priority to pay your credit card bills on time every month. That alone will improve your score quite a bit over the next year.
If you want to take it one step further, consider taking a loan from a family member or friend or applying for a personal loan from a bank or lending service to pay off your credit card debt completely. By consolidating your debt, you can usually pay it off more effectively and utilize a lot less of your credit every month.
That’s another thing that will usually send your credit score skyrocketing. In just a few months, you can bring your score up more than you ever imagined you would be able to simply by eliminating debt.
Monitor Your Credit Score Every Month
From the moment you commit to improving your credit score, you should also commit to checking your credit score religiously. The only way you’ll know if it’s improving or not is if you check it once every month to see how your efforts are paying off.
If you notice that your score isn’t jumping as much as you thought it would, double down on your efforts and do even more to bring your score up. There are credit repair services available to you that can make a dramatic difference in your score.
Now That You Know How to Get an Excellent Credit Score, Start Trying to Do It
Learning how to get an excellent credit score is, unfortunately, only a small part of the battle to bring your credit score up. After you understand how to do it, you have to work hard to see real results.
Even if you’re not able to achieve an excellent credit score in just one year, you’ll put yourself on the right path by checking your credit score and creating a plan to improve it. It won’t be long before you’re enjoying all the benefits of sitting in the top tier when it comes to credit scores.
Read our blog to find out more about improving and maintaining your credit score.
Coming Back from Terrible Credit (Where to Start)
Coming back from bad credit can be difficult because people don’t always know where to start. Good or excellent credit may be your goal, but to reach that higher score, there are certain steps you have to take.
If you want to see positive changes in your credit score, there are a number of things that you can do to start on your path to better credit.
Review your credit report
Consumers shouldn’t assume that the information reflected on their credit report is accurate and up-to-date. Reviewing your credit report will allow you to catch mistakes such as the balance on your credit card or the date your last payment was made on your personal loan account.
If you have questions or doubts about the information on your credit report, you can submit a dispute and have an investigation completed to confirm the information. If any information is inaccurate, it could be corrected or removed, and potentially increase your score.
Watch credit utilization
Your credit score is calculated using a variety of information about your finances and your money management skills. Credit utilization accounts for a certain percentage of your credit score and depending on your credit utilization, your score can increase or decrease.
It is recommended that all consumers keep their credit utilization at 30% or less. This means that if your available credit totals $1000, you don’t want to use more than $300 of that available credit. If you go over this percentage, you will likely see a drop in score, and the only way to change that would be to decrease your credit utilization.
Make on-time payments
Everyone has monthly bills that they are responsible for paying. Whether a payment is on time, missed or late, creditors can report this activity to the credit bureaus, which in turn will affect your credit score.
Avoid applying for new credit
Applying for a new credit account will result in a hard inquiry on your credit report. Each hard inquiry can take points off your score whether you are approved or denied, so you will see a significant drop if you continue to apply for credit. Before applying for a credit card, personal loan, or another type of credit account, consider your odds of approval and if applying is worth losing the points.
Pay down debt
The amount of money you owe is another piece of information that is used to calculate your credit score. Paying down your debt can be beneficial to you because you will owe your creditors less money, but you will also increase your score. Basically, the more you owe, the lower your score will likely be. But if you work on reducing your debt, you can easily see a bump in your score.
Unfortunately, it doesn’t take much to ruin your credit. And once it is ruined, improving your score can take some time. Making better choices about your finances is key, so as long as you actively work to improve your score and avoid making mistakes such as defaulting on student loans, filing for bankruptcy, or even making a late payment on your auto loan, you can see a positive change in your score.
Need help recovering from poor credit? Contact Credit Absolute today for a free consultation.
Why is it Important to Monitor Your Credit? (Top Reasons to Monitor)
A person’s credit scores greatly influence their ability to secure a home loan, rent an apartment, or open a credit card account. Yet, many consumers still fail to keep a watchful eye on their credit report.
Checking up on their credit report may not be a priority, but considering the effect that credit has on a person’s life, consumers have more than one good reason to monitor their credit.
Correct inaccurate information
It is common for people to have inaccurate information reflected on their credit report. Creditors can see a lot of information when they check a person’s credit, from the spelling of their last name to the current balance on a credit card account and the last time the bill was paid. However, if this information is inaccurate, the consumer will have to be the one to get it corrected to ensure the creditor will be able to make an informed decision.
One thing consumers can do is file a dispute. In doing so, the consumer is requesting that the credit bureau investigate the information that has been reported. Typically, within 30 days, the credit bureau can inform the consumer of the results of this investigation and whether the information is valid or needs to be updated.
Protect yourself against fraudulent activity
The number of identity theft victims within the US totaled 14.4 million in 2018, according to Javelin Strategy and Research’s 2019 Identity Fraud Study. If an account is fraudulently opened in someone’s name, this account will appear on that person’s credit report. Unbeknownst to the consumer, there is someone out their charging thousands of dollars to a credit card with no intention of paying the bill.
Depending on when a person views their credit report, they will be able to see that there is an open account that they didn’t actually open and take action. Alerting credit bureaus of this activity can get the information removed from the credit report, but people should also report this to the FTC and contact the police, as identity theft is a crime.
Avoid unnecessary hard inquiries
Applying for credit will result in a hard inquiry. One or two hard inquiries on a credit report may not impact a person’s score by a lot, but as the number of hard inquiries increases, a person’s score decreases. Luckily, someone who knows their credit score knows their odds of approval when applying for a personal loan, credit card or another type of credit account.
For example, if a lender requires a borrower to have a score of 650, and an applicant has a score of 600, the chances of denial are high. Should that applicant know beforehand that they do not meet the lender’s minimum credit score requirement, they would be able to find a more suitable option for their credit profile and avoid unnecessary hard inquiries.
Improve/rebuild your credit
Credit reports contain a lot of information about an individual’s finances and credit health. The information that is reported to the credit bureaus is what is used to calculate credit scores, and certain information can cause a person’s score to drop significantly.
When someone monitors their credit, this gives them the opportunity to improve it because they can see what activity is negatively impacting their score. Someone with high credit utilization will be able to determine that using their credit cards less will increase their score. Or that if they avoid applying for credit too often, no new hard inquiries will be listed and decrease their score.
Being in the know is important when it comes to a person’s credit score. Even if they don’t want to monitor their credit on a daily, weekly or monthly basis, obtaining a free credit report every year would still allow them to keep an eye on things and do what is necessary to maintain a healthy credit score.
Do IRS Installment Agreements Affect Your Credit Score? Find Out Here
Paying your federal taxes when they become due isn’t always an option. When you have other debts to worry about and money is tight, you have to consider all of your options. An IRS installment agreement is a solution to this problem, but some people may be hesitant because they aren’t exactly sure how it works and how it can affect their credit score.
If you can’t pay your taxes and are considering alternatives, here’s what you need to know about IRS installment agreements and how your credit score can be affected.
What is an IRS Installment Agreement?
When the tax due date rolls around, taxpayers are expected to have already paid their taxes or to make a payment that day. It is like any other bill that you have to pay, but making one lump sum payment is not ideal for those who simply don’t have the money. Paying the total amount due may not be possible that day, and avoiding this debt is out of the question, so an installment agreement is an affordable alternative that will allow taxpayers to take care of this debt.
An installment agreement is one option for those who need a bit of time to pay their tax debt. An installment agreement is an agreement between the IRS and taxpayers. This agreement gives taxpayers the chance to take care of their tax debt over an extended period of time and ensures the IRS receives the money that is owed.
The IRS will then automatically withdraw payments on the due date every month, or you will make manual payments on or by the due date every month.
Do IRS Installment Agreements Affect Your Credit Score?
Credit scores are calculated using information about your payment history, debt, credit history length, new credit, and types of credit accounts you own. Each of these categories counts for a percentage of the credit score, and depending on a certain activity, people may see a negative or positive score change.
For example, a missed or late payment on your student loan, a new credit card account, and even a denied personal loan application can negatively affect your credit score. An on-time payment or not applying for new credit will have a positive effect on your credit score. That being the case, it is important to avoid certain activities if you don’t want to see a drop in score.
As mentioned above, your credit report will list the debts you owe; however; not all debts will be included in your report. The information listed on a person’s credit report is submitted or reported by creditors, and the IRS does not report federal tax debt to the credit bureaus. This means that an IRS installment agreement does not directly affect your credit score.
Should You Apply for an IRS Installment Agreement?
There are disadvantages to an installment agreement, but the one advantage that makes this option so appealing to taxpayers is that they can pay off their debt over time with no effect on your credit score. If you cannot pay your federal taxes by the due date, then an installment agreement may be the best option you have that will ensure you get this debt paid off and avoid further penalties.
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