How to improve your credit score fast
These strategies will help you improve your credit score as fast as possible.
A credit score is one of the most beneficial tools. It is used to measure your financial status. Banks and other financial institutions use your credit score to see how you handle your credit. It is easier to be approved for new loans or credit lines if you have a high credit score. So the higher, the better. Getting a good or excellent credit score gives you access to loans at the lowest interest rates.
It’s important to understand that a good or excellent credit score can save you hundreds of thousands of dollars in cash throughout your life. Having a good credit score also comes with having access to better plans on mortgages, auto loans, insurance, and other financing options. Most banks also compete for their business by providing better rates, perks, and fees because people with the best credit ratings are considered lower-risk borrowers.
The complete opposite applies to those with bad credit ratings. They are considered high-risk borrowers. This makes it hard to find banks and other financial institutions competing for their business. Also, having a poor credit rating makes it difficult to find housing, rent a car, or get an insurance policy due to lower insurance scores.
If you’d like to improve your credit score, there are several steps and strategies to follow. Granted, this will take time and a lot of patience. Here are the ways you can take to improve your credit score step-by-step:
1. Check Your Credit Reports
Checking your credit history is the best step because it shows what’s working for you and what’s not. And knowing what’s wrong is the first step to understanding how to fix it.
Get a copy of your credit report from the 3 major credit bureaus — TransUnion, Equifax, and Experian. You could always use the official website, AnnualCreditReports.com, and check your credit history once a year for free. Then use each of those reports to see what’s helping to improve your credit score and what is not.
Here are some of the factors that contribute to a 100 score points on your credit card:
1. History of making payments on time.
2. Low to zero inquiries for new credit.
3. Minimal balances on your credit cards.
4. Older credit accounts.
You can always have errors in your credit history, so it’s good to check your credit score regularly. But do so through soft inquiries, which could be done through your bank. Most banks offer credit monitoring to their customers, so it’s important to check this with your bank and enroll in their service to receive credit alerts. This will let you know if and when your score changes.
2. Simplify your monthly bill payments
It is shown that FICO credit scores are used by most lenders (91% of them to be accurate). They are also determined by certain factors, such as:
a. Payment history — 35%
b. Credit Usage — 30%
c. Age of credit accounts — 15%.
d. Credit mix — 10% and
e. New credit inquiries — 10%
As you can see, the first factor (payment history) with the most impact on credit score. So leave any paid debts such as auto loans or student loans on your record. It is an advantage to pay your debts in full and on time. So make sure you avoid late payments as much as possible, as this is the easiest way to improve your credit score in no time.
Here are some tips for doing just that:
You could create a paper or digital reporting system like a spreadsheet to keep track of your monthly payments. You can also use some apps to set alerts for your upcoming payments in the week or month. Finally, make sure to automate your bill payments from your bank account. This helps to keep you accountable and prevent you from defaulting.
3. Get and keep a 30% Credit Utilization
Credit utilization is the size or the amount of credit limit used at any given time. In the FICO credit score regulations, this is the second most beneficial factor.
If you’re up for it, try keeping your outstanding credit card balances at 30% or less of your total credit limit. From there, you can reduce it to 10% or less. Doing this helps you tremendously in improving your credit score.
The easiest way to keep your credit utilization in control, on the other hand, is to pay your monthly credit card balances on time. Another way to do this is to ask your credit card company to increase your credit limit. This can really help your credit utilization. But make sure you don’t increase your spending. Doing this increases your credit balances.
4. Do Not Request for New Credit
Credit history has two types of inquiries. These are referred to as hard and soft inquiries. A soft inquiry will not affect your credit score and includes something like checking your credit or giving a potential employer permission to check your credit for validation.
Hard inquiries include big tasks like applying for a new credit card, an auto loan, a mortgage, or another form of new credit. They can harm your credit score for a short period. This goes from two months all the way to 2 years. Most hard inquiries (not the occasional ones) can damage your credit score in a short amount of time.
So make sure you avoid applying for new credit because banks and other financial institutions could mark you as a risk. Because they would think cash and that you’re facing financial troubles.
Also, you might have asked yourself this question:
Can I improve my credit score by removing hard inquiries?
And the answer is yes. You won’t see a drastic improvement but having hard inquiries removed from your history will improve your credit score. So if you’re sure of erroneous reports, talk to your credit card company and have them removed.
5. Become an authorized user
Credit piggybacking allows you to add a good credit account to your credit report. This way, you have a better utilization using its credit limit. This is how it works in simple terms:
If you have a close friend, a brother, or any relative with a credit account with a good history of making payments on time and a high credit limit, seek to be added as an authorized user. This allows you to benefit from the account holder’s good payment history. Of course, the primary user of the account doesn’t have to give you the credit card or the account number.
To get the best impact and improve your credit score, make sure the account you’re added into reports to all three major credit bureaus.
For this to work, you’ll need to have a conversation with the account holder for the favor and agree on whether you could use the account and the credit card or you’d simply be listed as an authorized user.
6. Pay your monthly credit bills on time
Did you know that late payments can stay on your credit reports for 8 years? This is why it’s so hard to improve a credit score and hopefully get those 100 score points. The most effective strategy to improve your credit score is to pay your balances in full.
If you miss a payment by a month or so, be sure to call your credit company and let them know immediately. After that, pay as soon as you can and check with the creditor to see if they would be willing to evade reporting your missed payments to the credit bureaus. Even if they won’t agree to this, it’s important to keep them in the loop about the status of your account. Do this as soon as possible.
Making late payments can seriously hurt your credit score within a short time because an account is marked as delinquent.
This factor is highly influential. As we have seen before, making your payments on time has the highest FICO score and the highest percentage in the credit scoring systems.
It’s important to note that you can easily prevent missed payments by setting up reminders and automatic payment plans to help you improve your credit score ASAP.