You do not have to pay for "credit repair" to improve your credit. You can get free credit counseling services from a HUD- certified housing counselor or do it yourself with the credit enhancement strategies listed below:
a. Your payment history represents 35% of your credit score. Your credit score is mainly based on how you repay what was borrowed. Therefore, paying your credit cards and loans as agreed will help increase your credit score more than any other strategy.
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Strategy: Pay at least the minimum amount due via autopay to ensure you are always on time. You can pay more by making additional payments. Pay at least the minimum amount due with autopay to prevent having a late payment on our credit report. Late payments negatively impact credit scores. You can set up online autopay with credit card companies, banks, credit unions, and lenders. |
b. How much of your credit limit you use or spend represents 30% of your credit score. This is called credit utilization. High balances on your credit cards will decrease your credit scores. It is recommended to use no more than 30% of your credit limit. For example, your credit card has a $1,000 limit. Therefore, you should never owe more than $300.00 (30% of $1,000) on your credit card.
| Strategy: You can set up and receive email alerts about your credit usage from credit card companies. You want to receive alerts when the balance owed on your credit card is close to 30% of your credit limit. Let us look at the above example, which recommends never owing more than $300 of the $1,000 credit limit. You want to receive email alerts when the balance owed is less than $300, and you can comfortably pay down the balance owed, pay off the balance in full, or use another credit card. Remember, you must use credit to have a credit score but use it wisely and do not spend more than 30% of your credit limit. |
c. The length of your credit history represents 15% of your credit score. How long you have used credit represents 15% of your credit score, and the average of your credit age is also considered. Do not close old credit cards unless you have no other option.
| Strategy: Instead of closing a credit card because of a high balance, place it in "lay-a-way". Take the credit card out of your wallet and put it in a safe place in your home so you will not use it. The credit card is in "lay-a-way" at your home until you pay down the balance owed to less than 30% of the credit limit. Use the credit card company's autopay to make monthly payments. You want to pay more than the minimum amount due for a quicker impact on your credit score. Once you have paid below 30% of the credit limit, you can take the credit card out of "lay-a-way" and place it back in your wallet but use it wisely. |
d. The type of credit accounts you use represents 10% of your credit score. There are two types of credit accounts: revolving accounts and installment accounts. Revolving accounts provide a line of credit you can borrow against, and the minimum monthly payment is based on the balance owed. An example of a revolving account is a credit card. Installment accounts provide an upfront lump sum that is repaid over a set period. The exact amount is paid every month. An example of an installment account is a car loan.
| Strategy: Have a mixture of revolving accounts, such as credit cards, and installment accounts, such as auto loans or personal loans from a credit union or bank. |
e. Recently opened or applied for credit represents 10% of your credit score. Typically, new credit will reduce your credit score for a few months. However, it can help increase your credit score with time if you keep your credit balance below 30% and make on-time, monthly payments.
| Strategy: If you want to apply for several credit cards, do not submit multiple credit card applications at the same time. It is recommended to wait at least six months before applying for another credit card to avoid a substantial drop in your credit score. |