There are plenty of tips and tricks on how to improve your credit score – and we’ll get to those in a moment – but nothing you watch, hear or read about the topic may affect your credit ratings more quickly or more effectively than paying bills on time and using your credit cards judiciously.
“If you’re going to encourage people to improve your score, referring them to those two elements – items that are fairly easy to change – is a very good start,” said Tatiana Homonoff, an assistant professor of economics and public policy at New York University, who completed a two-year credit score analysis and published a paper on it in April 2018.
Homonoff, who is affiliated with NYU’s Robert F. Wagner Graduate School of Public Service, added: “There are some elements of the credit score method that are very difficult to achieve, but paying bills on time and knowing how to use credit are things that people can do with great ease, even if they are in a tough financial position.”
She found consumer behavior dramatically improved when customers become knowledgeable about their credit score.
“Certain people thought they had a great score, but then they discovered that they overestimated it.” “They knew that they had to start changing credit habits, and they stopped making late payments, paying off the cards with a balance and increased their ratings.”
It’s worth knowing that it takes more time to fix a bad credit score than to build a good one.
Mistakes penalize your credit score and end up costing hundreds or thousands of dollars while investing at higher interest rates. A poor credit score can also be a roadblock to rent an apartment, set up utilities and maybe even get a job!
12 Tips for Improving Your Credit Score
If you are like other people, and you don’t realize the credit score, you will find some free places. The Discover Card is one of several types of credit card and offers free credit scores.
Discover offers your FICO score, which is used by 90 per cent of lending firms.
Most other credit cards such as Capital One so Chase send you a close, but not equal, Vantage Rating. The same goes with blogs such as Credit Karma, Credit Sesame and Quizzle.
The Vantage Ranking comes from the same place as FICO derives the information — the three major credit rating agencies, Experian, TransUnion and Equifax — but it weights factors differently and the two scores may make a slight difference.
As Homonoff mentioned, once you get your performance, you might be shocked if it isn’t as good as you’d anticipate. Those are ways of improving the score.
Check The Cash Report – You are entitled to one free credit report per year from each of the three reporting agencies, and no effect on your credit score unless you submit it. Test the check closely.
Dispute any errors you make. It is the closest that you can get to a fast turnaround on credit.
Notification of incorrect or outdated information to the credit reporting agency will raise your score as long as the false information is deleted.
Set up payment notifications – write down payment dates in a diary or schedule for each bill, then set up alerts digitally. Paying your bills faithfully on time will increase your ranking in just a few months.
Pay More than Once in a Billing Cycle – Pay your bills every two weeks instead of once a month if you can afford to.
Call The Creditors – Do this to set up a payment plan promptly should you meet the payment date and can not cover the monthly bills.
Sparingly apply for new credit – Although it raises your total credit cap, it decreases your ranking if you apply for or open multiple new accounts within a short period of time.
Don’t delete unpaid credit card accounts – The length of your credit history varies, and it’s best to have a longer history.
Be Careful Paying Off Current Debts – If the borrower “loading off” a loan, that means they don’t anticipate any additional payments.
When you make a payment on an off loan fee, it will reactivate the balance and reduce your credit score. This often occurs when the organizations engaged with selection work.
Pay Down “Maxed Out” Cards First – If you are using multiple credit cards and the amount owed on one or more of them is near to the credit limit, pay that one off first to reduce the credit utilization rate.
Diversify your balances — your credit balance — mortgage, auto loans, student loans, and credit cards — contributes 10% of your credit score. Adding another item to the current mix can boost your score as long as you make the payments on time.
Easy Loan Shopping – If you have bad credit and can’t find any other way to improve your score, you may consider taking a “easy loan.” These are generally loans for small amounts — $250 to $1,000 — that get interest background recorded to credit agencies, and can become a favorable one on your credit report. This is the final resort.
See If you apply for a 0 percent interest card – Many businesses give 0 percent interest on credit cards, but there are limitations to it.
There may be a fee to pass the balance and the deal of zero percent is only valid for an introductory period, usually 12-18 months. On qualify for one of these usually requires a very good credit score.
Try a Debt Consolidation Program – When you engage in a debt consolidation plan, there could be a slight decrease in your credit score, but as long as you make on-time payments, the score increases quickly and you are removing the debt that has given you difficulty getting started.
How Long Does It Take to Rebuild Credit?
Generally seeing a noticeable change in your credit score takes at least 3-6 months of good credit conduct.
It’s hard to make a change any better, unless the negative information on your credit report has been a minor blip, like being a month late for bill payments.
While it’s impossible to set a specific time frame for credit repair, it’s safe to say the less negative information you have on the record – late fees, maxed out credit cards, pending credit inquiries, unemployment, etc. – the quicker it is to fix the credit score.
If you’re late for one bill you won’t lose almost as many points as you will if you’re delinquent for several months to the degree that the balance has been turned over to a collection agency.
The severity of the second situation is far greater than the first and that will be reflected in your rating.
What to Look for on a Credit Report
One approach that will not cost you a thing to improve my credit score is to review your free credit report and look for errors.
Each of Experian, TransUnion and Equifax’s three major credit monitoring offices is required by law to give you a free report once a year.
A study by the government found that 26 percent of consumers have at least one potential material mistake which makes them look like a greater risk than they really are.
Some are simple (but expensive) errors such as misspelled names, passwords, or accounts that belong to someone else with the same name.
Some less apparent mistakes that can be expensive include accounts that are registered late or overdue incorrectly; loans listed twice; accounts recorded as still open; accounts with an inaccurate balance or credit cap.
My opportunity to scrutinize your credit report conscientiously? Approximately 20 percent of customers who found mistakes saw their credit score increase.
So, What Is a Credit Score?
A credit score is a statistical analysis of your financial history, a measure commonly used by lenders to assess the likelihood of you repaying any loans they give to you.
The FICO credit score (so-called Fair Isaac Corporation) is used by 90 percent of U.S. companies to decide how much credit to give a customer, and what interest rate to charge for that loan.
In the equation which produces your credit score, FICO uses five main components. Those five include the following:
Experience of payment (35 per cent ranking): Will you pay on time? Will you pay the balance in full, the minimum or somewhere in between?
Moneys due (30 per cent): how much credit are you allowed to use? If you exceed the limit, you will be considered a high danger, and will be penalized.
If you use less than 30 per cent of your credit, you will be considered a safe creditor and you will earn a positive rating.
Credit history period (15 percent): The more you have a record, the more the scorekeepers like it.
Credit combination (10%): FICO wants to see a mix of credit cards, mortgages and auto loans … so long as you can afford them!
Don’t take out yet another loan in order the rating will adjust. In the final calculation this term doesn’t count enough.
New credit (10 percent): It’s OK to open a new account sometimes, but if you apply for multiple accounts in a short time, you’re a risk and your score will show it.
The credit score will fluctuate as you go about life. How much it fluctuates depends on how trustworthy you are, particularly credit cards and installment loans, to repay debt on time.
If you use credit more often, whether it’s from bringing on more credit cards, receiving a lease, taking out a student loan or auto loan, the credit score improves to show how you perform further debt liability.
Any Simple Credit Score
The credit scores are between 300 (poor) and 850 (excellent). Higher scores clearly reflect good credit history, including on-time payments, low credit use, and lengthy credit history.
Lower scores suggest the lenders could be risky investments due to late deposits or over-extended credit usage. There are no clear cutoffs for either good scores or poor results, but each has criteria.
Many borrowers found scores above 720 to be optimal and scores below 630 to be challenge. The 2018 average credit score hit a historic 700.
Pay attention to used credit
Credit use accounts for 30% of your credit score, and is often the most ignored way to improve your performance. One of the easiest ways to improve your score is to understand how it works — and how to make it work for you.
Credit utilization is the percentage of credit available that is used in a billing cycle.
In mathematical terms this is calculated as follows: the amount due divided by the credit limit of the card. The best use of the available credit is less than 30 per cent.
For instance, if you have one card with a credit limit of $1,000 and spend $300 a month on it, your credit utilization is exactly where it should be (300 divided by 1,000 = 0.30 or 30%). Any expenditure under credit utilization of 30 per cent is considered a good thing.
The damage to your score begins when your rate of utilization exceeds 30%. If you spend $500 a month on the same card, your use of credit will increase to 50%.
That is an indication that you are taking on more debt than you can afford to credit agencies, so your credit score drops.
There are two options if that happens: slash your spending or consider applying for a second credit card.
The most sensible choice is to cut spending, but circumstances might not allow for that. If you change or lose a job, move to a new city, incur unforeseen medical costs and any number of other reasons, it may cause your bills to rise and use of credit to rise with them.
If that occurs, a second credit card may be required to help improve the credit score.
A second card with a credit limit of $1,000 increases your existing credit to $2,000 per month. If you split the $500 that you spend between the two cards each month, your credit utilization drops below 30 per cent for each card.
Your problem is solved in this scenario, but only if you are disciplined about the use of a tracking card.
That means keeping constant tabs on how much is spent on each card, setting up alerts to check total spending and even paying down the bills in the middle of the month so you’re sure to stay below 30% use.
If you do all this, you can petition the card companies to raise your credit limit to $2,500 and make it easier to stay below utilization of 30 per cent. Maybe you could even go back to using just one card.
It’s usually frowned on adding credit cards to your wallet, but if you have credit utilization problems it’s worth looking into.
If you do not have credit If you have no credit history, off! A positive credit history helps almost every aspect of your financial future, whether you buy a car, rent or buy a home, or even apply for a job.
The easiest way to commence is to apply for a credit line. Credit cards are generally easy to obtain for gas stations or department stores, and are good ways to build solid credit. Using them wisely, taking care not to overcharge them. Every month the key is paying your bill on time.
If you cannot get a traditional credit card approved, sign up for a secured credit card.
These cards require a deposit which is often equal to the credit limit you are going to be extended with the card. For example, a deposit of $500 will get you a secured credit card with a limit of $500 to spend.
These cards act the same as unsecured cards in that each month you receive a monthly bill, and payment is expected. Be sure to report the expenditure on the secured card to the credit reporting bureaus.
In most cases, your deposit will be refunded when you’re finished with the card, as long as you pay each month. The monthly payments cannot be made through your deposit.
If you’ve got a job, another way to start a credit history is to take out a loan, maybe buying a used car. Making regular payments will help in a positive way to set your credit history.
Being an authorized credit card user is the best possible position in the credit world: you get all the benefits, and no responsibility. You spend, someone else pays, and credit improves for everyone.
Generally this obviously-lopsided relationship happens with a partner, relative, sibling or close friend. It takes nothing more than a phone call from the cardholder to the card issuer that gives permission to use the card, but does not pay the bill.
The cardholder is solely responsible for that
In the meantime, you not only acquire a credit card’s purchasing power, but also have credit history added to yours by the cardholder.
That gives you the opportunity to add three positive features to your credit report right away: an increase in the number of years using credit, an increase in the average age of credit cards you use, and an increase in the use of credit available on your cards.
The combination of these three elements on its own could raise your credit score from 50–100 points anywhere.
On the other hand, if the cardholder is late with payments, maxes out the card each month or does anything else that is negative, it will have a negative impact on both the cardholder’s credit scores and the authorized card users.