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3 ways to fix your credit fast
There are three ways to fix your credit score that have the potential for immediate improvement:
1. Dispute errors on your credit report
Mistakes on your credit report can pull your score down significantly. For instance, one study found that 5% of consumers’ credit scores increased by more than 25 points after a bureau removed an error on their report. 1
Check your credit reports from the three nationwide credit bureaus (Equifax, Experian, and TransUnion) at least once per year for errors. 2
Dispute any mistakes you find to delete the negative marks from your credit report. Among other items, you can remove:
To dispute errors on your credit report, write a letter to the bureau in question explaining why you think they made a mistake. If you can, include evidence to support your claim (e.g., if you have a late payment, look to see if you have bank records proving that you actually paid it on time).
Generally, the bureau will be required to investigate your claim within 30 days. They’ll remove the negative items from your credit report if they can’t verify them. 3 (Note that it’s possible for deleted items to reappear on your credit report, so be vigilant.)
If you think the error might have originated with your original creditor instead of the credit bureaus, you should also send them a dispute letter as well. Illegitimate hard inquiries and late payments are likely to have originated with your creditor, whereas cases of mistaken identity (someone else’s accounts getting reported as your own) are more likely to be an error on the credit bureau’s part.
2. Get a credit-builder loan
The main credit scoring models reward you for having a diverse array of credit accounts.
The variety of your accounts, known as your credit mix, makes up 10% of your FICO score. It also constitutes around 20% of your VantageScore (although it’s grouped along with your credit age in a larger category called Depth of Credit).
Generally, to get a good credit mix, you need to have at least one of revolving credit accounts (such as a credit card) and one installment loan (such as a mortgage and car loan). 4 That said, how many credit cards and loans you should have depends on your personal circumstances.
If you don’t have any installment loans, you might be able to quickly improve your credit score by taking out something called a credit-builder loan. When you take out this type of loan, you don’t receive any money right away; instead, you get access to it after you finish paying off the loan.
Credit-builder loans are intended to build your payment history and credit mix, and if you previously had no installment loans, getting one can immediately raise your credit score.
3. Lower your credit utilization rate
Your credit utilization rate is the percentage of your available credit that you’re using. In general, the lower your utilization rate, the better.
In FICO’s scoring model, your utilization rate is the major component in the “amounts owed” category, which constitutes 30% of your score. It also makes up 20% of your VantageScore. This means it’s important to make sure you don’t use too much of your available credit.
If you’re in the habit of using a lot of your credit, lowering your utilization rate can immediately improve your score.
How to lower your credit utilization
There are three strategies you can use to reduce your credit utilization:
- Spend less on your credit cards: Lowering your credit card balances (or paying off your credit cards entirely) will usually increase your credit score.
- Increase your credit limit: If you regularly need to use a lot of credit, consider asking your card issuer to increase your credit limit. Getting a credit increase can help your credit by reducing your utilization rate, even if your balance stays the same.
- Open a new credit card: Similarly, you can open a new credit card to increase your available credit and reduce your utilization rate. However, doing so may have mixed results; it will also lower the length of your credit history, temporarily damaging your score.
Consider a debt consolidation loan
Alternatively, you can lower your credit utilization by transferring your credit card debts onto a type of installment loan known as a debt consolidation loan. Your revolving credit utilization is weighted more heavily by the scoring models than the amounts remaining on your installment loans, so doing so might improve your credit score. 7
4 long-term habits to fix your credit
While it’s possible to improve your credit score very quickly, sustaining your good credit score is a long-term process that requires patience and discipline.
There are four habits you need to practice to build your credit in the long run:
1. Always pay your bills on time
Your payment history makes up 35% of your FICO score and 40% of your VantageScore. Make sure you know when your bills are due, because the impact of missing a payment can be severe. Falling 30 days behind has the potential to knock up to 80 points off your FICO score. 9
2. If you do miss payments, catch up on them as soon as possible
Lenders generally don’t report late payments to the bureaus until they’re 30 days or more overdue. 10 This means that if you miss a payment but you catch up on it quickly enough, it won’t hurt your credit score, although there may be other consequences (like late fees).
You should also catch up on any past-due debts that have already appeared on your report. The longer your payment is overdue, the greater the damage to your credit score, especially if it ends up in collections. While newer scoring models (from FICO 9 and VantageScore 3.0 onwards) ignore collections you’ve paid off in full, which means you can recover from the negative mark, you should still never let it go to that point.
If you think you might miss one of your upcoming bills, proactively contact your lender. They might be willing to help by reducing the minimum payment required or postponing the due date. After all, they don’t benefit from you falling behind on your debts any more than you do.
3. Keep your old credit cards open
When you close a credit card, it reduces your available credit. This will generally raise your credit utilization rate, causing a drop in your credit score.
Generally, you should keep your old cards open (unless your card’s annual fees are too high). Make small purchases on each account every few months to keep your lenders from closing any of them due to inactivity.
4. Only open new credit accounts when you need them
Opening a new credit card can hurt your credit. Your FICO score will usually drop by around five points when you apply for new credit because doing so triggers a hard inquiry (a credit check from your lender that will temporarily hurt your score). 11
Similarly, every new account that you open will temporarily lower your credit age, further damaging your score.
You shouldn’t open a new account unless you actually need it. That way, there will never be too many hard inquiries on your credit report.
How to get help to fix your credit
If you’re feeling overwhelmed, you can hire a credit repair company to dispute errors on your credit report on your behalf. Typically, credit repair companies charge around $75 a month for a membership or a $50 fee each time they delete an error. 12
Credit repair companies can save you time (and stress), but it’s important to realize they don’t do anything that you can’t do for yourself. You can always dispute your own credit reports, and the bureaus are legally required to remove any mistakes that you find for free. 13
Credit repair companies also won’t necessarily be able to erase valid negative information or turn a bad credit score into a good score; you probably shouldn’t expect a 100-point increase in your score overnight.
How long does it take to fix your credit?
The time it takes to fix your credit depends on the severity of the negative items that are on your credit report.
Typically, most negative items don’t have much effect on your VantageScore after two years. 14 FICO behaves in a similar way; although items remain on your credit reports for up to 7 years (10 in the case of certain bankruptcies), their effects diminish over time.
In general, the more severe the negative event is, the longer your score will take to recover. As one 2011 FICO study notes, 90-day late payments often damage your score for longer than 30-day late payments. Foreclosures have the potential to damage your score for longer than any type of late payment, and so on. 15
The good news is that, as mentioned, negative items fall off your credit report after 7 to 10 years. They can’t possibly damage your score after this, which means that if you avoid incurring further negative marks, your score will fully recover in time, and you’ll be able to enjoy all the benefits of having a good credit score. 16