5 tips to fix your credit and improve financial health

If you’d like to improve your credit score but aren’t sure where to begin, give yourself a break. None of us is born knowing everything about credit or financial health. It’s what we learn along the way that matters. While some of the following tips may seem obvious, others could be new to you. Either way, adopting these simple strategies could put you on the road to great credit and a strong financial foundation.

1. Check your credit report

There are three major credit report agencies—Equifax, TransUnion, and Experian—and you typically don’t know which one (or which ones) a particular creditor reports to. That’s why it’s so important to take advantage of your right to order free credit reports through a site like AnnualCreditReport.com.

Once you have all three reports in hand, go over each one with a fine-tooth comb, looking for any potential mistakes. It doesn’t matter how small an error might be. If you find that one of your reports has your middle name wrong, for instance, or a report says you owe a balance that was paid off months ago, circle the mistake and report it to the credit reporting agency in question.

Fortunately, you can usually report mistakes directly through the website of each credit reporting agency. An agency has up to 45 days to investigate your dispute. If their investigation finds you’re right, they must remove the incorrect information from your report.

Maybe a misspelled middle name doesn’t sound terribly important, but even a small error on your report could down drag your overall credit standing.

2. Stay on top of your bills

Creditors are like long-term partners. They don’t want to hear that you’re faithful some of the time or even most of the time. They want to know that you carry through with your promises all the time. The only way to convince a creditor you’ll be faithful to them is to pay all your bills in full by the due date. Month in, month out.

3. Reduce your balances

Creditors usually like to see balances below 30% of your available credit. In short, they like to know that you have access to credit but use it carefully. Let’s say you have a credit card with a spending limit of $1,000. Creditors would prefer to see you with a balance of $300 or less. The amount of your credit you use at any given time is referred to as credit utilization. 

Take a look at your current revolving debt. If you have a balance, set a goal of paying it down until you clear it.

4. Limit credit applications

Creditors don’t want to think you play the field, trying to score credit wherever you can. They want to see you’re just as careful about how often you take out new credit as you are about how you manage the credit you already have.

Each time you apply for new credit, a hard inquiry is added to your report, which drops your credit score a bit and lets creditors know you’ve been looking. Limit how often you apply for new credit, which could prevent the dip in your overall credit score and assure creditors that you’re not shopping around for a fresh money source.

5. Decide if a secured card could help

If you have trouble getting approved for a traditional credit card, ask your bank or credit union about getting a secured credit card. With a secured card, you make a security deposit equal to what will become your credit limit. If you want a $1,000 credit limit, you’d make a $1,000 security deposit.

The deposit acts as collateral, so the credit card issuer doesn’t have to worry about whether they’re going to get repaid. The issuer holds on to the deposit while you use the card, and you make monthly payments toward any charges, just like you would with a traditional credit card.

The sweet thing about a secured card is that your payments are reported to credit reporting agencies, and every on-time payment helps build your credit rating. 

Finally, don't get discouraged. No matter where your credit stands today, you have it within your power to give it a healthy boost.