Last Updated on July 28, 2023 by Mike

How Do You Increase Your Credit Score?

Many life events can impact the credit score and prevent certain financial goals from being realized. When the dream of homeownership is directly impacted by low credit scores, the situation can seem insurmountable. Low credit score mortgages have been created to allow the person who has made some mistakes an opportunity to recover. Once you have secured a mortgage low credit score issues can be addressed, and the loan can be refinanced later.

If efforts to apply for a mortgage are stalled, there are ways to improve the credit score. Follow the suggestions below to address the situation and make strides to address potential problems in the credit history and increase the overall credit rating.

Five Credit Score Components

1. Bill payment record – 35% – All payments that are made prior to the due date on bills such as the mortgage, certain utilities, credit card bills, and medical bills will not appear within the credit history. Consistent bill paying habits over long periods will increase the credit score. All payments that fall outside the timely guidelines set forth by creditors will lower the overall credit rating. Paying bills on time is a large portion of building a high credit score. One late payment can require many months to offset on the credit history.

2. Percentage of available credit – 30% – The second largest component of the overall credit rating is the actual number of dollars of credit available to the individual. Outstanding debt that is above 35 percent of the available credit will lower the credit score. Creditors perceive risk of default when debt is outstanding, so the credit score will be lowered. This percentage appears as “debt ratio” on the credit report.

3. Credit history length – 15% – Proven success with credit is measured in the number of years that the credit history has been written. Senior citizens with good credit are perceived as having a low risk of default so their credit scores are higher. Sustained high credit can provide approval for special credit privileges when the credit history is very long.

4. Credit Variety – 10% – Experience with installment and non-installment credit will have a stabilizing effect on the credit score. Creditors will evaluate the types of credit in the history and evaluate the debt ratio based on all the types of credit that are available.

5. New credit accounts – 10% – Every inquiry against the credit records associated with one SSN will be recorded with the three credit bureaus. Multiple inquiries within six months will alert the credit bureaus to a potential problem with the account and the credit score will be lowered for a short time. There are reasons for multiple inquiries against a credit history, and the short term impact can be mitigated by awareness.

Actions to Take to Repair Existing Entries

If bills have been paid on time consistently, one of the causes for a low credit score can be invalid entries on one or more of the credit reports maintained by the credit bureaus. These entries can have substantial impact on the overall score, but they can be removed if the process is followed.

1. Acquire all three credit report versions – Separate credit reports are maintained by each of the credit bureaus, and a free copy must be provided once per year to anyone who makes a request. Check your credit score consistently to prevent surprises when you go to apply for a loan. Write a letter to each credit bureau to get a copy of each report.

2. Search for incorrect entries or negative information – With a little practice, the codes and entries on the report will become familiar. Evaluate the dates and amounts for accuracy. All entries that are inaccurate and reflect negatively on the credit score can be disputed with the bureaus. Avoid the temptation to dispute accurate entries that are valid and due.

3. Write dispute letters to each of the bureaus – Whenever an inaccurate is discovered during your credit score check, compose a standard dispute letter and send it to each bureau where the entry resides. Example letters are easily acquired from any number of websites.

4. Track efforts to address issues – Use certified USPS letters with delivery confirmation for every letter sent to the credit bureaus. Create and keep a log of every phone conversation and letter sent.

5. Allow time for credit bureau research – By law each credit bureau has 30 days to investigate a dispute and respond to the inquiry.

6. Evaluate updated credit report sent – Every response from a credit bureau will contain a new version of the credit report. Refer to the original dispute letter sent to the bureau and look for the entry. Remember to check each bureau’s report.

7. Write again for any legitimate dispute – If an invalid entry is not removed from the report, wait 60 days and file another dispute letter with a different reason that the entry is invalid. Duplicate dispute letters are disregarded. Some people attempt to flood a credit bureau with repetitive dispute letters, and this method does not achieve results.

Success Guidelines

Follow these steps in order to have the invalid entries removed from the credit history.

1. Dispute credit bureau records FIRST – Creditors cannot change entries on the credit report because the consumer disagrees with the entry. Contact the credit bureau where the invalid entry exists. For example, contact Experian to improve the credit score Experian has on file.

2. Create and maintain accurate documentation – Some disputes evolve into legal matters that will require proof of every contact made between you and bureau. Accurate records will be critical to your success. Make an entry in your log for every contact made with the credit bureaus to address inaccurate entries on your credit report.

3. Avoid online disputes – Opinions vary about the success rate with online dispute forms. If the dispute goes to court, the online dispute process is not recognized. If one of the inaccurate entries seems easy to address, use the online process. Difficult situations may require written letters to address the entire situation effectively.

4. Be reasonable – Keep in mind that only inaccurate entries on the credit history can be disputed. Time will be required to correct the credit report with multiple invalid entries. The credit score averages will be negatively impacted until all three bureaus remove the invalid entries.

5. Never abandon the quest – When an entry can be proven invalid, continue to work with every credit bureau to resolve the issue. Whenever the bureau asks for information, provide everything requested. Write firm letters but never threaten anyone.

Final Consideration

When low credit score averages prevent you from qualifying for a loan, remember that mortgages for low credit scores are available. Show the creditor your efforts to correct the entries with the credit bureaus and be open about the situation. Low credit score mortgage loans will be more expensive, but you will be able to refinance as the credit score improves. If you already have a mortgage, you can refinance with low credit scores but you will pay a higher interest rate. Obtain a copy of your credit report every six months and continue your efforts to improve all 3 credit scores.