10 Ways to Improve Your Credit in 2023
In some ways, the COVID-19 pandemic has been good for Americans. Many saw their credit scores rise over the past two years. This was largely due to stimulus checks and other pandemic relief that allowed borrowers to pay down their debts. Once the free money stopped, however, credit scores leveled out. Now, inflation is rising and a looming recession has caused credit debt to jump nearly 16% over this past summer. This may put many people at risk of reversing the positive steps they’ve made toward improving their credit scores. To avoid potential problems and maintain a healthy credit rating, be sure to check out these 10 ways to improve your credit in 2023.
1. Create a Budget
One of the best ways to improve your credit is to know where your money is going and come up with a plan to limit unnecessary spending. Creating a budget will not only help you feel more in control but also make it easier to set up financial goals. We suggest using the 50/30/20 rule which sets aside 50% of your income for necessities, 30% for needs/wants, and 20% for savings.
2. Set Up Automatic Payments
One of the largest impacts on credit is your payment history. If you pay late (30 days or more), it can negatively impact your score and remain on your credit report for over seven years! Avoid making late payments by setting up autopay on all your accounts.
3. Pay Down Balances
Another crucial component in determining your credit score is your credit-to-debt ratio – also known as your credit utilization ratio. If you want to bump up your score, start paying down your existing balances ASAP! Start with your high-interest accounts first and set a goal to get your ratio below 30% if at all possible. Those with the highest credit scores typically have a credit utilization ratio of 7% or less.
4. Don’t Close Old Accounts
It may seem like a good idea to close accounts you no longer use, but doing so may harm your credit score. That’s because you decrease the amount of available credit. If you have outstanding balances, your credit utilization ratio will instantly increase, which will lower your credit score. Additionally, accounts with longer credit histories and high credit limits let creditors know that you are a good risk.
5. Request a Credit Limit Increase
One way to lower your credit utilization ratio is to request a credit limit increase. If your account is in good standing or your income has increased, it’s usually an easy ask. Just be aware that a “hard” credit inquiry may temporarily ding your credit score by a few points. You also want to refrain from using any of the additional credit as this will not help lower your debt-to-credit ratio.
6. Get Added as an Authorized User
If you are trying to establish a credit history or need to improve your score, ask a friend or relative with a good credit history to add you as an authorized user to one or more of their accounts. You don’t even need to use their account to benefit from their positive payment history. The additional credit limit will help your debt-to-credit ratio and improve your score.
7. Review Your Credit Report Frequently
Due to COVID-19, the three major credit bureaus (Equifax, Experian, and TransUnion) are currently offering free weekly credit reports through December 2023. Although you may not need to review your credit quite that often, it’s recommended that you pull a report at least once a year. If you are actively working on improving your score or have dealt with identity theft in the past, we suggest pulling it quarterly. This is a good way to ensure your information is accurate and detect potential fraud.
8. Dispute Credit Report Errors
Once you review your credit report, it’s important to dispute any discrepancies you may find. This includes incorrectly reported late payments, credit accounts you didn’t open (fraud), and even negative information that should have been removed due to its age. Be sure to keep copies of your filed disputes and track any follow-ups. The credit bureaus have 30 days to review and respond. Once erroneous items are corrected, your credit score should improve ASAP!
9. Settle Collection Accounts
If you’re currently in collections with one or more accounts, consider trying to settle with the original creditor or debt collection agency. Options typically include:
- Lump-sum settlement (paying in full but for less than you owe)
- Workout agreement (the lender may temporarily reduce your payments, or waive interest and/or late fees)
- Hardship program (if you have a financial setback, the lender may lower your interest, suspend fees, and/or reduce or waive your payments)
Although a paid collection account won’t drop off your credit report for several years, it’s still less damaging than an unpaid account in collections.
10. Use a Secured Credit Card
Another way to establish good credit or rebuild a damaged score is to take out a secured credit card. A secured credit card is backed by a cash deposit but works the same as any other credit card. Your credit limit will match whatever amount you deposit. If you maintain good credit habits and pay on time, the card issuer may even upgrade it to a traditional unsecured card in the future.
Good credit gives you access to more borrowing options and more favorable terms. Building credit or improving an existing score, however, is not something that will happen overnight. It requires restraint and good financial habits. If you want to start 2023 on the right foot, consider requesting a free consultation from CreditSolver. One of our credit counselors will review your TransUnion report with you and identify any areas of concern. It takes about 15 to 20 minutes and is 100% free. To get started, contact us today!