The adage “good things come to those who wait” applies to many aspects of our lives, but unfortunately, it doesn’t necessarily pertain to credit scores. You need to do some legwork to improve your score, especially if it has not increased for years.
But first, you need to understand why your credit score is languishing. Here are seven reasons your score is the same as it was seven years ago:
1. You don’t pay your bills on time
The largest portion of your credit score – 35% – is determined by your history with paying bills on time. If you have a bad habit of paying late, your score likely won’t make any big gains.
But on the flip side, if you make it a priority to improve this one behavior, you’ll see a big payoff. Mark your calendar or set digital alerts to remind yourself when your bills are due, and keep a budget to be sure you’ll have the funds to pay them.
2. You use too much of your credit
After paying your bills late, using too much of your available credit is the worst thing you can do for your score. If you’ve been overcharging for years, your efforts to improve your credit are probably stalled.
Thirty percent of it comes from your credit utilization ratio — which is the percentage of how much you owe on your cards compared with how much available credit you have — so it’s important to keep your balances under control. A good rule-of-thumb is to avoid using more than 30% of your available credit on all your cards at all times.
3. You’ve been through a foreclosure
If you used to have good credit but then went through a foreclosure, your score is probably just getting back to where it was seven years ago. Some financial mistakes, like having a bill sent to collections for a small amount, might drop off your credit report before the seven-year mark. But because a foreclosure is a very serious event, it’s likely to stick around on your credit report as long as is legally permitted.
But the good news is that as long as you’re making other good moves with your credit, after seven years, your credit has nowhere to go but up.
4. Your oldest account isn’t very old
Fifteen percent of your credit score comes from the length of your credit history, but the information used to determine this is commonly misunderstood. FICO uses the age of your oldest account as its data point, not age of the consumer.
In other words, even though you’re getting older, you won’t see big improvements to your score if your oldest account is still fairly new. Keep using credit regularly and responsibly; you’ll rack up points as the length of your credit history grows.
5. You apply for credit too frequently
Every time you apply for new credit, your score will lose a few points. Plus, if you apply for a slew of cards or loans in a short period of time, your score will take a hit from the 10% that’s determined by new credit inquiries.
To keep your credit climbing, only apply for loans that you really need.
6. You have lingering errors on your credit report
According to a 2013 study by the Federal Trade Commission, 20% of Americans have a least one error on one of their three credit reports. Some errors are harmless, but others could do serious damage to your score. If you have a mistake on your credit report, be sure to take steps to clear it up. Doing so could result in a sizeable jump in your score.
7. You don’t mix it up
Ten percent of your credit score comes from the mix of accounts you have on your credit report. Ideally, you’d have a cocktail of both revolving and installment loans in your name, but applying for new credit just for the sake of improving this portion of your score is not recommended. Just know that if the need arises, opening an account that’s different from the others on your report will probably boost your score in the long term.
The bottom line: Waiting around for your credit to improve won’t do much good. You’ll need to take some steps to make it happen. Luckily, with these tips, you’ll be well on your way to success.
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