Home > Credit Score > How to Fix Your Credit by Labor Day

Comments 0 Comments

As spring gives way to summer, you’re probably thinking more about long weekends with friends, backyard barbecues and just hanging out poolside than you are about how to improve your credit score.

But if you have less-than-stellar credit, there’s no time like the present to turn your financial situation around. The following steps can help you say hello to a better credit score just as you’re saying goodbye to summer.

Here’s how to improve your credit score, even if incrementally, by Labor Day.

1. Understand Your Credit Scores

The first step is knowing what you’re looking at. You have more than one credit score, but they’re all calculated based on five key factors – payment history, how much of your available credit you’re using, your account history, the mix of accounts and how often you apply for new credit.

What is considered “good” actually depends upon the score being used and the lender’s standards (you can read more about what makes a good credit score here). Each lender decides how to use these numbers, so one mortgage company might consider a 690 adequate, but others might require a higher score for you to qualify for a loan. That said, here are some basic guidelines, based on the common FICO score range of 301-850:

  • Excellent Credit: 750+
  • Good Credit: 700-749
  • Fair Credit: 650-699
  • Poor Credit: 600-649
  • Bad Credit: below 600

2. Set Up an Action Plan

Now that you know what your credit score means, it’s good to check yours and then establish a plan on how to improve it. (You can do both of those things by signing up for Credit.com’s free credit report summary. In addition to giving you two free credit scores, it also provides an action plan that can help you improve you score by assessing your standing within the five major items that impact your credit.)

If your credit scores are actually pretty good, there are still ways to make improvements. You can build good credit in the long term by making all loan payments on time, keeping debt levels low and adding a mix of accounts over time (more on these actions below).

3. Check Your Credit Report for Errors

Checking your credit report on a regular basis is one of the first steps to catching errors that can come from several sources, whether from an identity thief or even lender error. By pulling your reports from each of the three major credit reporting agencies — Equifax, Experian and TransUnion — you can review the records to see if they’re accurate. You can get your free credit reports annually at AnnualCreditReport.com.

If they’re not accurate — an FTC study found that 1 in 5 people have errors on their credit reports — you can dispute the errors.

4. Avoid Late Payments & Collection Actions

Your payment history accounts for roughly 35% of your score. This one is pretty self-explanatory: paying your bills on time will help keep your scores high, while late payments, charge-offs, and collections will hurt.

If you’re trying to improve your credit rating, avoid the latter at all costs. And while this category makes up the largest single chunk of your scores, it’s important to understand that 65% of your score is determined by other factors. Meaning that there’s more to it than simply making your payments on time.

5. Pay Down Your Balances

Another 30% of your score is based on the amount of debt you’re currently carrying, or more specifically, the amount of money you currently owe your creditors. While the total amount that you owe is considered (credit cards, home loans, car loans, etc.), pay particular attention to your credit card balances. Of course, a zero balance is optimal, but keeping them below 30% of your limit can help your credit score. Ten percent or lower is common among those with the highest credit scores. You can use this handy credit card payoff calculator to help you get started.

6. Don’t Close Your Oldest Accounts

The age of your accounts matters. The longer you’ve had credit, the more points you’ll earn in this section, which counts for 15% of your credit score. So even if you aren’t using that old retail card you’ve had for 15 years, you may want to keep it open so you don’t lose the good credit history, so long as there aren’t any fees making it difficult to maintain.

7. Review Your Credit Mix

The diversity of your credit accounts is important, and worth 10% of your total score. If you have a blend of credit cards, auto loans, mortgage loans, etc., you’re likely to improve your score here. If you have nothing but installment loans, like a personal loan or auto loan, for instance, you might consider applying for credit card. (Just be sure to pay any balances off, ideally in full.)

8. Limit Your Applications for New Credit

While getting a new credit line can improve your score in the long term, applications for credit will ding your score slightly.

Basically, when you apply for credit, an inquiry will post to your credit report showing that you’re seeking credit. Having too many inquiries in a short period of time can hurt you. As a general rule of thumb, try to avoid excessively shopping for credit – only open a new credit account when you really need it. (By law, inquiries remain in your credit reports for two years. However, only inquiries in the past 12 months are generally considered in your credit score calculation.)

Remember, if you have negative information on your credit reports, it will take some time for them to age off. For example, late payments will stay on your report for seven years. But by taking action now, you can begin building a solid credit history that will make your financial life significantly easier. Even by the time Autumn rolls around.

More on Credit Scores:

Image: gpointstudio

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team