Looking to quickly increase your credit score? You may want to buy a house or apply to rent an apartment. Whatever the reason there are quite a few simple tips you can implement that will work fast.
In 2016, determined to pay off debt and buy my own home, I began to work on raising my credit score. While I knew I was still a couple of years away from this goal, I also knew it was important to get started as quickly as possible. While some factors can only be corrected with time, some will quickly increase your credit score as soon as they are reported.
I implemented most of the strategies below, and successfully raised my score over 100 points by the time I applied for my first home loan.
Understanding the Basics of Credit Scores
Your credit score is one of the most important numbers in your financial life. That’s assuming you ever want to purchase something on credit, rent an apartment, buy a house…etc. I spent many years not caring about this number.
I vividly remember an apartment manager telling me I needed to work on it before I tried to rent another apartment. Despite that advice I continued to ignore it. Over time, as I accumulated significant debt and watched my credit score plummet, I came to realize just how crucial it truly was.
Let’s start with the basics. Your credit score is a 3-digit number that ranges from 300 to 850. This number is meant to represent how “creditworthy” you are – in other words, how likely you are to repay any debt you take on. The higher your score, the better.
Most lenders consider a credit score of 700 or above to be “good,” while scores below 600 are generally seen as “poor.”
The Biggest Factors That Affect Your Credit Score
Alright, let’s dive into the biggest factors that can have an impact on your credit score.
First and foremost, your payment history is the most important factor when it comes to your credit score. Making on-time payments, month after month, is absolutely crucial. Even one late payment can do some serious damage, so staying on top of bills is key. According to Capital One credit simulator, if I was reported as making one late payment my score would decrease by 67 points.
Another major factor is your credit utilization ratio which is the amount of credit you’re using compared to your total available credit. Experts recommend keeping this ratio under 30% for the best score but the closer you stay to zero the better. Believe it or not you’ll want to keep it a little above zero versus right at zero as it shows creditors you can manage debt well.
The length of your credit history also plays a role. The longer you’ve been responsibly using credit, the better. The types of credit you have – a healthy mix of credit cards, loans, and other accounts – can impact your score as well.
FICO Score, which is one of the most popular credit scores used by creditors, base their number off these factors.
- Payment history: 35% of your score.
- Amount owed (credit utilization): 30% of your score.
- Length of credit history: 15% of your score.
- Credit mix: 10% of your score.
- New credit (credit inquiries): 10% of your score.
At the end of the day, building and maintaining an excellent credit score takes time. But understanding the biggest factors at play will help you make smart decisions.
Steps to Quickly Increase Your Credit Score
Let’s explore some quick and effective ways to boost your credit score
Dispute credit report errors
Request your reports from all three credit bureaus – TransUnion, Equifax, and Experian. Any mistakes need to be reported immediately since they can drag your score down.
Take Care of Collections Accounts
Paying off or communicating with collections accounts is essential to mitigate any future damage. Once you’ve arranged a payment plan or paid off a balance, ask if the creditor will stop reporting the debt. While success isn’t guaranteed, it never hurts to ask. In fact, it might just work in your favor.
Pay Your Bills on Time
This is single-handedly the most important factor and accounts for 35% of your credit score. It’s imperative to make all minimum payments on time. One late payment can impact your score significantly.
Life does happen, and setbacks are inevitable. If you find yourself off track, just make sure to get back on course. While late payments remain on your credit report for seven years, their impact diminishes over time.
Pay Off Any Balances
Depending on your current credit utilization rate, paying off any outstanding balances can significantly boost your credit score. Credit utilization is a major factor in determining your credit score.
Consider Consolidating Debt with a Term Loan
If you can’t immediately pay off your credit card debt, try using a term loan to consolidate. This can quickly increase your credit score since paying off your balances can significantly lower your credit utilization, which is beneficial for your credit score. By transferring that to a term loan you can quickly lower your credit utilization. Be sure to keep your credit cards open and use them at least once a year to maintain and grow your credit history. Additionally, adding a term loan introduces a new type of credit to your profile, further enhancing your credit mix.
Keep Your Credit Utilization Low
You’ll need to get your credit utilization at least below 30% in order to quickly increase your credit score. Ideally you’ll want to keep it as close to zero as possible. Credit utilization is one of the most significant factors affecting your credit score.
Ask For a Higher Credit Limit
By raising your credit limit, you effectively are lowering your credit utilization. Let’s say you have a $1000 credit limit and carry a $500 balance. That means your usage is 50%. If you ask the credit card company to raise it to $2000 that will lower your utilization to 25%, bringing it under the recommended 30%. This is an easy but effective task to quickly increase your credit score. Some cards even let you request this through the app.
Minimize Unnecessary Credit Inquiries
Each time you open a new card there is a hard inquiry added to your credit report. In general, it’s not much of a drop, typically 5-10 points. However, if you are planning on applying for a home or auto loan it’s best to not make any inquiries for at least the 9 months prior.
Leave Credit Cards Open
Length of credit history is an important factor. It’s best to leave all cards open and use them at least once a year. I still have my original credit card open, even though it doesn’t offer any benefits like bonus points, and I maintain it with a single monthly auto payment of $1.
Sign up for Experian Boost
Experian Boost works to boost your score by considering monthly bills that typically aren’t reported, like your cell phone, rent, or internet. When I signed up, it immediately raised my score 3 points based off my internet payments. I have two more bills pending that will hopefully raise if further.
Monitoring and Maintaining a Healthy Credit Profile
Maintaining your credit score is important for your long-term financial health. Until you reach the point in life that you’ll no longer need loans, it’s important to stay on top of it. Downloading and monitoring it via apps like Credit Karma and Experian can help you stay on top of any issues that may arise in the future.
Benefits of an Excellent Credit Score
A good or bad credit score can significantly impact your life, even affecting your chances of getting approved for certain jobs these days. Even more importantly, it can cost you since you’ll pay far more in interest rates the lower your score is.
Even simple things like renting an apartment or getting a cell phone plan can be easier with a higher credit score. I truly never realized how much easier things were financially until I started working on raising my score.
When I bought my home, I remember sweating through the entire approval process. It kept me up at night for weeks. I had raised my score to the so-called “good” range, but it was still far from being a guarantee.
Fast forward four years and an additional 120-point increase in my credit score. When I bought my current car, I walked into the dealership with full confidence, knowing there was no way I wouldn’t be approved.
Final Thoughts: Quickly Increase Your Credit Score
It’s not out of reach to quickly increase your credit score. Your credit score is one of the most important financial metrics you have – so treat it with the care and attention it deserves!
By following these simple, actionable tips you can quickly increase your credit score and open up brand new financial opportunities. Let me know how it goes!
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