Credit scores fluctuate, and keeping yours excellent is a challenging goal. But there are specific guidelines to maintain a consistent credit history. Solutions exist even if you wish to repair your bad credit or have no credit history at all. However, there is no shortcut on how to raise credit score, and in most cases, it takes patience and discipline.
The best advice to rebuild credit is to manage it responsibly before you hit a rough patch. If you haven’t, start by repairing your credit history bit by bit. The following 15 steps will help you strengthen your financial position over time.
Table of Contents
- 1 What Is A Credit Score?
- 2 Credit Score Levels
- 3 The Benefits Of A Good FICO Score
- 4 How To Increase Your Credit Score
- 4.1 Review Your Credit History Report
- 4.2 Contact Your Creditors For Any Inaccuracies
- 4.3 Pay Your Bills On Time
- 4.4 Pay Your Credit Line Bills More Than Once In A Billing Cycle
- 4.5 Avoid Opening Several New Credit Lines In A Short Time
- 4.6 Focus On “Maxed Out” Cards First
- 4.7 Don’t Close Old Credit Line Accounts
- 4.8 Look Out For Fraud
- 4.9 Don’t Pay “Charged Off” Debt
- 4.10 Consider Payday Or Quick Loan Shopping As Last Resort
- 4.11 Transfer Debt To A 0% Interest Card
- 4.12 Think About A Debt Consolidation Plan
- 4.13 Don’t Exceed The Credit Utilization Rate
- 4.14 Become An Authorized User
- 4.15 Mix Up Your Credit Portfolio
- 5 How Long Will It Take To Improve My FICO Score?
- 6 How To Check My Credit Score?
- 7 How To Establish A Credit Score?
- 8 Final Thoughts
- 9 FAQ
What Is A Credit Score?
Your credit score is a three-digit figure showing lenders if you’re a reliable borrower. That specific number can affect your financial life and the way you take out loans. Moreover, scores play a vital role in the decisions lending institutions reach to offer you cash products.
Borrowers with FICO scores below 640 are subject to more hostile loan terms and rates. Lenders charge higher interest than on conventional loans to compensate for the risk they’re taking. Luckily, everyone can learn how to increase credit score by following simple guidelines.
But before that, check out these five factors that affect your score and determine your crediting eligibility:
- Payment history accounts for 35% of your rating. Making on-time payments on your accounts boosts your scores. Late payments, accounts in collections, and bankruptcy can hurt your FICO.
- Credit usage makes up 30% of your score. Keep an eye on all outstanding balances, how much you owe, and the credit limit you’re using on revolving accounts.
- Length of credit history takes up 15% of the rating. This category refers to the average age of all accounts, along with the oldest and newest accounts.
- The account types you have are responsible for 10% of your score. The credit mix tells lenders how you’re managing installment and revolving accounts. Showing that you handle debt responsibly helps your scores.
- Your recent activity makes up the final 10%. The final points depend on whether you’ve recently applied for loans or opened new accounts.
Credit Score Levels
FICO has four main credit score rankings: bad, fair, good, and excellent. This scoring starts at 300 and ends with 850. Borrowers in the 300-669 range may find it challenging to obtain financing at attractive rates. Any rating above 670 will qualify you for well-termed loans.
As for the VantageScore scoring model, it mostly overlaps with the FICO one. Many financial institutions use this model to determine your creditworthiness. Here, scores between 300 and 699 translate to poor and fair, whereas any figure above 700 will grant you access to high amount loans. Note that FICO and VantageScore take different approaches to validate the importance of the five categories.
What Is Considered A Good Credit Score?
FICO® makes various consumer credit scores, including “base” ones that target lenders in multiple industries. The company has also developed industry-specific scores for card issuers and auto loans.
FICO defines the “good” range as a number between 670 and 739. You’ll probably qualify for loans with lower interest rates and higher amounts if you’re at this threshold. According to FICO, the median score in the U.S. stands at 723.
VantageScore also considers scores above 700 as “good”. Lenders are comfortable with this figure, and the decision to extend credit is much easier. If your score is around 670 and it’s moving up, you’re on the right track.
The Benefits Of A Good FICO Score
You are probably aware that everyone is interested in achieving a good FICO score these days. But why does it matter so much? Well, being in the upper score range earns Americans multiple short and long-term benefits. Below are the most significant gains once you increase your credit score:
- Favorable interest rates;
- Better chances for loan approval;
- More negotiating power;
- Higher credit limits;
- Higher chances to get approved for credit cards and rentals;
- Access to unsecured loans;
- Low or sometimes no security deposits on utilities;
- Better rates on car insurance.
How To Increase Your Credit Score
Creditors rely on your borrowing history to decide whether you are a high or low-risk customer. So, if you wonder how to improve your credit score, several practical hacks can help you boost it. Though the steps you need to take will depend on your financial situation, some general guidelines can raise almost anyone’s credit.
Review Your Credit History Report
You can’t work on your credit unless you know your current position within the top-scoring model ranges. Getting acquainted with that magic number will point you out to any specific action you need to take. This is where checking your history a couple of times a year comes in.
Consider pulling your report from the three major credit bureaus: Experian, Equifax, and TransUnion. You have the right to do that with each bureau for free once a year. We suggest you get one copy in March, another in July, and the third in October through the official AnnualCreditReport.com website. Then review your history and focus on what’s helping or harming your score.
A history of on-time payments, minimal inquiries for new loans, and older credit accounts contribute to a higher credit score. Other factors that boost your rating include low balances on credit cards and a mix of different loans. Major credit detractors are late or missed payments, high DTI ratio, collections, and judgments.
The first step to improving your credit score is getting a credit report and spotting the main issues on it. Then, you can move on to solving them one by one.
Contact Your Creditors For Any Inaccuracies
In many cases, creditors are to blame for minor errors in your report. So, if you spot missing accounts or inaccurate information, contact your lender and ask for rectification. Or you might want to move your account to another creditor if your current provider doesn’t regularly report to the credit bureaus.
Some errors you should look for include:
- Clerical errors in reading or entering your personal information from a hand-written application;
- Accounts reported more than once, so it appears you have more debt or open lines of credit than the factual situation;
- Credit card or loan payments inserted under the wrong account;
- Ensure your report states that any closed account reads as “closed by grantor”;
- Make sure your former spouse’s debt has no impact on your statement;
- Check whether older bad debts got removed from your report after seven years;
- Be aware of bad debts and mysterious accounts stemming from operations of identity thieves who got hold of your ID information.
Pay Your Bills On Time
No strategy to improve your credit score will pay off if you default on bills and loans. The reason behind this is that payment history is the most significant factor that affects your rating. Even worse, late and missed payments can remain on your reports for 7½ years.
If you can’t pay every single bill on time, learn how to prioritize. In case you know you can’t keep up with the next installment, call your creditor right away. Negotiate to pay later than agreed and ask the creditor to skip reporting any missed payment to the bureaus.
Even if the creditor denies your request, it’s essential to get current on the account. Each month the account gets listed as delinquent, your score suffers. The good news is that the impact of missed bills will disappear over time by showing positive credit behaviors. Soon after, you’ll manage to offset the damage.
Forgetting to pay bills suggests to lenders that you struggle to manage your balances. To avoid this, arrange direct debits to pay all utility bills, phone, and credit cards. Your score will go up by automatizing your payments, and you needn’t worry about missing due dates.
Pay Your Credit Line Bills More Than Once In A Billing Cycle
Suppose you made a more significant purchase, such as new home furniture or workout equipment. In this case, the percentage of the total credit you’re using will increase. The utilization ratio will become even most noticeable for borrowers with a lower credit limit.
Let’s suppose your billing cycle ends on the 15th of each month, and your card issuer sends reports to the bureaus on the 16th. If you spend $2,000 on a card with a $10,000 credit limit, your utilization ratio will be 20%. Spending an additional $2,000 for car repairs on the 10th, besides the initial $2,000, will increase the ratio to 40%.
Yet, you can reduce this ratio by the time your billing cycle ends on the 15th. In short, you need to pay off the extra $2,000 and lower your utilization back to 20%. Paying part of your balance early can diminish the negative impacts on your score.
Moreover, when you have a higher-than-normal balance, consider making multiple payments within one billing cycle. Or try to settle the entire balance before the due date. Paying your balance twice or more a month means you’ll have a lower credit utilization rate when the bureaus receive your information. Plus, you can keep track of your expenses and refrain from overspending before you fall into debt.
Avoid Opening Several New Credit Lines In A Short Time
Your credit history can contain two types of inquiries referred to as “hard” and “soft” inquiries. Soft ones don’t impact your score. These might include credit checks by a potential employer, financial institutions you work with, and regular checks by you. Also, credit card companies make soft inquiries before they send you pre-approved loan offers.
Conversely, a hard inquiry can affect your score adversely for up to two years. Hard inquiries often include applications for new lines of credit, such as a mortgage, car loan, or new credit card.
Occasional hard inquiries may not have much of an effect. Still, numerous inquiries within a short period can hurt your score. Creditors might think you’re facing financial difficulties and consider you a risky borrower. So if you wonder how to improve your credit score, forgo applying for fresh money for a while.
Focus On “Maxed Out” Cards First
Settle your maxed-out card as soon as possible if you can afford it and your income exceeds your basic expenses. When you reach your credit limit, your debt-to-credit ratio increases, making your score drop. Irresponsible lending indicates you are spending beyond your means, and the bureaus don’t approve of using all available credit.
As soon as the maxed-out charges post to your account, wait no more. Direct all your efforts to pay off your balances. Postponing to settle due obligations means the card issuer will probably report the high utilization rate to the bureaus.
Creditors see maxed-out cards as a sign that you’re stretching yourself thin by using 100% of your available credit. Such figures can have a detrimental impact on your score.
If you can’t pay off the entire debt at once, focus on lowering the balance step by step. You may also ask for an increase in your credit limit if your FICO score is good. The bad news is that maxed-out cards shrink your odds for approval.
A low credit score affects many areas in your life and can negatively impact them. That’s why you should work on improving it as soon as possible.
Don’t Close Old Credit Line Accounts
A fully settled account is a good thing for any consumer. Yet, avoid closing it after you get rid of student debt or auto loan in the hopes that it will raise your credit score. We understand you may be anxious to get any trace of it wiped from your report, but hold your horses. Instead, keep any account as long as your payments were timely and complete.
Creditors approve of accounts with a long history and solid record of paying bills on time. Consistent debt records are evidence of responsible lenders and may help your score. The same is valid for credit card accounts.
Closing old credit card accounts will lower your FICO score and the maximum credit limit. Even worse, your utilization ratio will go up if you have balances on other cards or loans. You’d be better off keeping the card with a $0 balance.
Look Out For Fraud
In the last decade, identity fraud has become an increasing problem. Identity theft victims face damage to their credit scores and then become responsible for the thief’s actions.
To avoid this, check your report regularly for financial and ID fraud. If a scammer is trying to open credit or take loans in your name, you’ll see the early signs in the searches section. There, you can find all ‘hard’ credit searches carried out on your behalf. Any hard inquiries you don’t recognize could be an indication of fraud.
Don’t Pay “Charged Off” Debt
Settling a charge-off may urge you to think that your score will increase since your past due balance is now clean. But things are not that straightforward. Paid off charge-offs won’t remove the account from your report. Indeed, clearing up past due balances doesn’t eliminate the fact that your account got charged off and won’t improve credit score immediately.
If you continue paying other accounts on time and handle debt responsibly, your rating can go up over time. However, your score may drop even lower when you miss payments again or have another account charged off. The worst-case scenario would be a foreclosure or repossession.
Charge-offs eventually fall off your report whether you pay them or not. The credit reporting time limit for charge-offs expires after 7½ years from the date of the first delinquency leading to it.
Consider Payday Or Quick Loan Shopping As Last Resort
People strapped for cash that can’t find any other way to improve their score might consider taking a same-day loan. Also, if you have bad credit or no borrowing history at all, a payday loan may save the day.
These cash products are small-dollar loans ranging from $100 to $1,000 that you must repay with your next paycheck. Then, supposing you pay on time, your history will get reported to the credit agencies and positively affect your score. Yet, it’s best to consider this option as a last resort since interest rates and fees tend to be high.
Transfer Debt To A 0% Interest Card
Holders of balance transfer credit cards can move existing debt to a new account. The upside of this transfer is that it may entail a promotional period with APR as low as 0%. The consolidated debt should get settled interest-free over 12, 15, or 18 months depending on the card.
Once you move your balances to a single account, the utilization rates of previous accounts will become 0% on your report. As a result, your average utilization rate will be within the reasonable range.
Be aware of scoring models that calculate credit utilization on individual cards. In this case, the new balance transfer card may hit high numbers because it incorporates all the balances from previous accounts. The effect on your score can be damaging.
The ultimate goal of getting a balance transfer card is to pay off debt faster and in single monthly payments. Arranging for a 0% APR period and paying down any due balances will raise your FICO score on a short note.
Think About A Debt Consolidation Plan
Applying for a debt consolidation loan can be worthwhile if you have multiple debts. By consolidating your obligations, you’ll have one payment to deal with. Plus, you might get a lower interest rate and manage to pay down your debt faster. Such steps will improve your credit score in a few months.
However, remember to check the consolidation loan cost. Some lenders might charge origination and late payment fees. Others will urge you to pay 3–5% of the transfer amount beforehand. Weighing down the pros and cons will help you decide whether this is the right course of action to boost your score.
Don’t Exceed The Credit Utilization Rate
Credit utilization is the portion of your borrowing limit you’re using at any given time. Check your balances as opposed to your limits to ensure how much available credit you’ve taken.
The best way to keep your credit utilization in order is to pay balances in full each month. Alternatively, try to keep the total outstanding balance below 30% of your total credit limit. Overall, it’s best to maintain a utilization rate of 10%, which is considered ideal for improving your score. The higher this ratio, the more points you lose in the category, and your score suffers. People with the highest FICO scores have utilization of only 7%.
Become An Authorized User
This strategy needs a solid plan and perseverance. Consider asking close people with a long history of responsible borrowing practices and a high credit limit to join their accounts. In this case, you become an authorized user. The account holder doesn’t have to grant you access to the card nor tell you the account number.
Although you can’t use the card, your credit can still improve. This scenario works best if you have a bad FICO score, and the impact can be significant. In only a few months, your file can fatten up and give you a more extended credit history with lower utilization rates.
Mix Up Your Credit Portfolio
Maintaining a mix of loans shows creditors that you can handle multiple loan types at the same time. As long as you implement the elements above, a boosted credit mix will help you reach the highest score range.
An ideal mix includes both revolving and installment credit. An example of revolving credit is when you open a credit card and timely pay the balance every month. As for secured installment loans, consider taking a small personal loan. Once set, you will demonstrate your capacity to deal with different credit types.
Improving your credit rating takes time. So, be patient and don’t get frustrated if you don’t see positive changes right away.
How Long Will It Take To Improve My FICO Score?
Your plans on how to raise your credit score should be long-standing. Typically, it takes at least six months of good credit behavior to see a noticeable change in your score. It is difficult to alter the report figures faster than three months unless the negative impact was due to a minor blip. For instance, if you lost several points due to a single late payment, this can get fixed within a short time.
The golden rule goes that the less harmful information your report contains, the easier you can repair your score. Hence, avoid taking steps with detrimental influence such as maxed-out credit cards, many loan applications, and bankruptcy.
You’ll need more time to repair a poor score than to build a good one. Even minor mistakes deprive you of points and, consequently, loans with favorable rates and terms. Many lenders offer bad credit products, but you’ll end up paying over the odds in higher interest rates and fees. A bad score can also be a roadblock to setting up utilities, renting, and sometimes, getting a job.
Check the following time frames in which damaging information remains on your report.
- A delinquent account remains on your credit history for seven years.
- Chapter 7 bankruptcy stays for ten, whereas Chapter 13 for seven years.
- Car repossession will impact your report for seven years.
- Loan applications stain your history for two years.
- Public record items, including property liens, remain on your report for seven years.
How To Check My Credit Score?
Keeping track of your reports is vital if you wonder how to increase credit score. Hence, start by reviewing your statements for any inaccurate information and ask for removal. If you believe your report contains errors, dispute it right away. Ensure you provide copies of the disputed data to support your claims.
To get a free copy of your borrowing history, request a credit report. You can get one from the three credit reporting agencies each year, namely from Experian, TransUnion, and Equifax. Note that 20% of all reports contain errors or omissions that can significantly drop your score.
Explore “pay to delete” when you want to settle an account in collections. This way, you’ll remove the adverse information by negotiating with the agency in charge of your debt. Before you pay the bill, get the agreement in writing.
Consider sending “goodwill” letters to your lenders. These letters should be concise, pleasant, and direct requests asking the creditor to remove negative entries. Not every lender will agree, but you may hit pay dirt if you have only a few blemishes in an otherwise impeccable history.
How To Establish A Credit Score?
It’s time you roll up your sleeves if you have no borrowing history behind you. The easiest way is to apply for a line of credit. Credit cards for gas stations get approved fast and can build a solid score. Remember to use them responsibly and avoid overcharges. Also, pay your bill in due time each month.
If a traditional credit card is off-limits, apply for a secured one. To do so, you’ll need a deposit equal to the credit limit. For instance, an $800 deposit will get you a secured card with an $800 spending limit. Ensure credit reporting bureaus get informed about the spending on the secured card.
Being an authorized user is another way to establish a good score. This way, you boost the number of years using credit and the utilization ratio available on your cards. This combination can increase credit score anywhere from 50 to 100 points.
If you are employed, consider taking out a car loan to start a credit history. Making regular payments will help establish a record of excellent money-management practices.
If you aim to apply for a mortgage, car loan or qualify for the best rewards cards improving your credit score is essential. Indeed, working on your borrowing history is a worthy goal, but it can take several weeks or months to rebuild it. By following the advice above, you’ll soon see a noticeable impact on your score.
Do you wonder how to raise your credit score? Have you taken any steps to earn a few points on your report? Please, share the outcome with our loyal readers, and sign up for our newsletter for more credit-building tips.
Can you improve your credit by 100 points?
Yes, you can, and you should start by lowering your utilization rate. Also, settle debt on the accounts with the highest interest rates. Next, try to dispute any inaccurate information on your reports or ask for late payment forgiveness. Pay bills on time and add utility and phone payments to your report.
How fast can you raise your credit?
People with lower scores usually have better odds to make gains, unlike someone with a good history. Paying accounts on time and using less of the available credit limit on cards can raise your score in 30 days. Depending on how you handle FICO score factors, it may take longer.
How can I raise my credit in 30 days?
First, start by paying down revolving balances and removing recent late payments. Second, if you have a collection account, find a way to eliminate or dispute it. You can also try to raise your borrowing limits. When everything else fails, get more credit and repay it on time.
How do I get my credit score up by 100 points in one month?
Most often, increasing your score by 100 points in a month won’t happen. However, if you eliminate consumer debt, pay your bills on time, and avoid large balances on cards, you stand a good chance. You must also maintain a mix of loans to increase your score within 30 days.