The average credit score is 699 as of July 2016. Does that sound like you? You might have a credit score lower than that. First of all, don’t fret – you’re not alone. Here’s the good part – I’ve used Credit Karma to increase a poor credit score before.
Credit Karma is free and it can help you keep track of every factor on your credit report. With discipline, you can slowly increase your credit score.
Getting started with Credit Karma to increase a poor credit score
To get started on increasing your poor credit score, you need to sign up for Credit Karma. It’s really simple.
Credit Karma is a service designed to function as a credit monitoring app. Credit Karma will do a soft credit inquiry every 7 days as you login. Over time, you can use their credit factors to improve your credit score.
As an added bonus, using Credit Karma can provide you with security as you’ll constantly be monitoring your own credit. By monitoring your credit, you’ll protect yourself from identity theft and any unauthorized use of your credit.
Credit Karma is also a great app to use so you know every time your credit information has been pulled. For example, I’ve been notified when a mortgage refinancing company pulled my credit report without making it totally clear that’s what they were doing.
To begin, you’ll need your email address. They’ll ask you for a password and a security question and you’ll be on your way.
You’ll need the last 4 digits of your social security number
After you’re done with Step 1, you’ll be asked for your current address, date of birth, and last 4 digits of your social security number.
If you’re concerned about security of your data, Credit Karma uses 128-bit encryption to protect your data and they only have read-only access to the data on your credit report.
Finally, Credit Karma will use the data you provided to prompt you to confirm your identity. These questions will typically ask if you ever lived at a certain address, if you have a loan with a certain bank, or anything that pops up in the public record.
(If you’re interested in how companies get this data to confirm your identity, read about IDology. Pretty creepy, huh?)
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After you complete the sign up process, you should be presented with a screen like this. Credit Karma gives you an estimation of your actual credit score via TransUnion and Equifax.
Although Credit Karma provides you with two scores, it’s important to remember there are many different models for your credit score. For example, you may have received a different score when you applied for a credit card. If you want to read more about this, check out Credit Karma’s explanation.
Like budgeting, keeping track of your credit score is a good habit
While your score could be different from what you’ve seen elsewhere, you should still use Credit Karma to track your credit score over time.
Credit Karma will keep track for you.
While you increase a poor credit score, keeping a record of your progress will serve as motivation. Sometimes it’s just fun to watch your score increase over time.
Once you’re setup with Credit Karma, you can start reviewing important factors which determine your credit score. If your score is poor, these factors are extremely valuable if you want to increase your credit score.
While you review your credit score factors, you’ll eventually be armed with a plan. Tackle the high impact factors first. Then, move on to the factors with medium impact. At that point, I would simply use Credit Karma as a credit monitoring service – I don’t see much value in perfecting your low impact credit factors.
Review your credit card utilization
Once you have a Credit Karma account, the first credit score factor to look at is your credit card utilization.
Credit card utilization is a major factor in your credit score. If your credit card utilization is more than 30%, your score is likely getting dinged pretty hard.
Credit Karma makes it super easy to visualize how you use your credit cards. If your utilization is between 0-29%, your credit score probably won’t be effected by this factor.
To lower your utilization, there are two solutions: find ways to increase your credit limits or start making two payments on your card per month.
If you’re trying to increase your credit limits, you’ll have to do some research. Sometimes simply logging on to your credit card’s website is enough. On the other hand, you may have to do your homework and call into your credit card’s customer service line.
Increase your credit limits
To aid in your quest to increase credit limits, I recommend reading through posts at CreditCardForum. On the forum, there’s a rich history of people’s success stories on increasing credit limits and other valuable information. For example, did you know American Express will often increase your credit limit by 3 times simply by asking? I know – I’ve done it.
Also, credit card companies typically only give credit limit increases every 6 months or so. If you’ve tried within the last six months, put a reminder in your calendar and try again in the future.
As an added bonus, increasing your credit limits will typically effect your limits on new cards you apply for and receive.
If you’ve exhausted all of your options on increased credit limits, you’ll have to figure out a way to keep your balance lower. You may have to cut spending or use your debit card or cash a little bit more.
If you can’t decrease your spending and save money, try to pay your credit card twice a month. Doing so should keep your balance lower when your credit card issuer reports to the credit reporting agencies. You may notice an immediate uptick on your credit score by doing this.
Make on-time payments
In addition to credit card utilization, your payment history can certainly help you increase a poor credit score.
Credit Karma gives you access to your payment history and what information credit reporting agencies has on file for you.
Much like credit card utilization, your payment history is a major factor in your credit score.
To businesses offering you credit, your payment history tells them how likely you are to pay them back.
Never miss a payment
One late payment can hurt your credit score. If you want to increase a poor credit score, making payments on time is essential.
Never miss a payment. If you’re forgetful, consider setting up automatic bill pay to make sure you’re always on time. If you don’t want to setup automatic bill pay, use your smart phone’s calendar and set payment reminders.
Don’t procrastinate. If you’re approaching the payment due date on a credit card, drop what you’re doing and schedule the payment. When your top goals is to increase your poor credit score, very few things should distract you from paying your bills on time.
If you miss a payment, you could hurt your score for as much as 12 months. For example, if you had a 800 credit score, your score could immediately drop to 730 with a missed payment.
Double check your derogatory marks
When checking your derogatory marks, you may notice you have an account in collections. For example, you may have an old medical bill that you never knew about.
You could even have a derogatory mark from your parents.
Also, derogatory marks could prevent you from opening any new credit accounts whatsoever – depending on the seriousness of the offense.
If Credit Karma shows you anything under derogatory marks, you should immediately start the process of removing the marks from your credit report.
Once you have this information, develop a plan to resolve these marks. It may take significant time and effort. However, all hope is not lost. If your goal is to increase a poor credit score, this step is 100% worth it.
If possible, remove derogatory marks
It may not always be possible to remove derogatory marks.
If you do nothing, derogatory marks will naturally fall off your credit report in 7 to 10 years. Over time, those same marks will effect your score less and less.
If you see a derogatory mark and you believe its inaccurate, you can typically have it removed. After all, it’s estimated that 25% of credit reports contain errors. However, you’ll need to invest time and energy to be successful.
To prepare yourself, know that you’ll need to call, mail, and email many times to fully remove a derogatory mark from your report. For some people, this can be daunting.
There are many resources available to help you remove derogatory marks from your credit report. Start with credit.com. Then move on to /r/personalfinance where people share stories on how they’ve conquered their own derogatory marks.
While you research, take notes. If you don’t feel comfortable with something you’ve read, do some more research.
Removing derogatory marks could take months. Typically, you may have to write a dispute letter (read: snail mail) if you can’t dispute the mark online.
This is why people often hire legitimate credit repair companies. However, please be aware as Credit.com notes:
A good credit repair company will explain exactly what it can and cannot do on your behalf, will never guarantee a “100-point rise in your credit score” (this is illegal, in fact), and will never ask for payment until after you’ve received services from them.
To increase a poor credit score with derogatory marks, you may have to look for errors and remove them. If the derogatory marks are accurate and are your fault, you’ll likely have to wait 7 to 10 years.
Increase the age of your credit history
While credit utilization, on-time payments, and derogatory marks greatly impact your credit score, the age of your credit score only has a medium impact.
If you’re young, this is one factor you can’t immediately improve. Sometimes you just have to wait. On the positive side, age of credit history only accounts for 15% of your credit score.
However, the sooner you open credit accounts, the more time you have to increase the age of your accounts.
Student loans, car loans, mortgages can all be used to calculate your age of credit history.
When you close an account, age of credit history will be impacted. For example, if you’ve had a credit card for 10 years, you should consider the impact on your age of credit history. Although not as critical as the previous factors, the act of closing the account could negatively effect your credit score.
With some credit card companies, they will backdate new accounts which will further bolster your age of credit score.
One such company is American Express.
If you don’t have any credit cards and you think you can responsibly manage credit, you should consider applying for a couple credit cards. By doing so, your age of credit history will increase over time (along with your credit limits and payment history, if you make on-time payments).
Review your total number of accounts
While age of credit history is the only factor with medium impact, your total number of accounts is the first factor with low impact.
The total number of accounts you have open just doesn’t effect your credit score much. This is doesn’t mean you shouldn’t open new accounts.
There are other benefits to opening new accounts like your available credit and on-time payment history, but your total number of accounts just doesn’t help.
When you’re trying to increase a poor credit score, look at other factors first. The total accounts factor is not something you should be using to greatly increase your credit score.
Reduce your credit inquiries
Many people think that credit inquiries greatly effect your credit score.
On the one hand, they’re sort of right. If you apply for a bunch of different credit cards and a few different auto loans, your score may decrease by a bunch.
However, if you’re simply applying for one credit card, you will probably only see a decrease of 2 or 3 points. In some cases, one additional credit inquiry won’t effect your score at all.
Use Credit Karma to monitor your credit inquiries. If you’re in the 3-4 or 5-8 category, you may want to wait before applying for new credit.
Although these credit inquiries will remain on your credit report for 2 years, they may only effect your score for six months. After six months, the credit inquiries are simply there for record keeping and nothing more.
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Credit inquiries can be grouped together in certain situations
If you’re shopping for a mortgage or a new car loan, you get a few special bonuses for hard inquiries. Inquiries can be grouped together if they’re done within 14 to 45 days of each other.
Finally, many companies will do what’s called a “soft pull” to check your credit. This is the type of inquiry Credit Karma performs. Soft credit inquiries never effect your credit score.
Typically, a soft pull will be done for background checks. Sometimes, utility companies will do soft pulls.
If you have too many credit inquiries, consider waiting before applying for new credit. It’s generally a best practice to only apply for credit when you need it. By doing so, you will get maximum effect – for example, your credit score can effect the size of your credit limit when applying for a credit card.
When you’re trying to increase a poor credit score, don’t worry too much about credit inquiries. Unless your credit history is short, hard credit inquiries shouldn’t drastically decrease your credit score.
- By using Credit Karma daily, you can increase a poor credit score.
- The top three major factors of your credit score are credit card utilization, on-time payment history, and number of derogatory marks.
- To decrease your credit card utilization, try to increase your credit limits.
- Increasing the age of your credit history takes time. It’s the only factor you can’t immediately improve.
- Certain inquiries on your credit report are grouped together e.g. when you’re shopping for a mortgage or car loan.
Do you use Credit Karma? How has Credit Karma helped you increase a poor credit score? Let me know in the comments below.