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How to increase your credit score
Your credit score is an estimate of your creditworthiness, or how reliable lenders think you are. The three major credit bureaus (Equifax, TransUnion, and Experian) use two credit scoring models to calculate your score: FICO and VantageScore.
In both models, the following factors make up your credit score (in descending order of importance):
- Payment history
- Outstanding balances and credit utilization
- Length of credit history
- New credit applications and hard inquiries
- Credit mix (i.e., diversity of credit account types)
If you want to build your credit, the first thing you should do is check your credit reports from all three credit bureaus to find out which factors you should prioritize improving. You can request all three of your credit reports for free from AnnualCreditReport.com.
When you review your reports, keep an eye out for:
- Outstanding debts that you still have to pay
- Potential errors, e.g., incorrectly reported debts
If you discover either issue on your credit reports, you might be able to improve your credit score with a couple of quick fixes.
3 ways to improve your credit quickly
Try these methods to clear your debts and fix your credit:
1. Catch up on past-due accounts
If your credit reports show that you have one or more late payments, then you need to bring your accounts current to keep them from further harming your credit score.
An account with a 30-day late payment isn’t as harmful as one with a 60-day or 90-day late payment, and none of these is as bad as a charge-off or collection account. 1
If you’re just a few days late, then make the payment as soon as possible. Your creditor won’t report your late payment to the credit bureaus until it’s at least 30 days overdue (although they may charge you late fees or subject you to other penalties). 2
You can also sometimes remove late payments by negotiating pay for delete. However, this is usually difficult unless the debt is severely delinquent.
2. Consolidate your debts
If you’re managing multiple debts, consider debt consolidation, which can improve your credit score by enabling you to pay down your debts more quickly. It also simplifies your payment schedule, reducing the risk that you’ll miss one of your payment deadlines.
Common approaches to debt consolidation include:
- Balance transfer: To use a balance transfer for debt consolidation, transfer the balances on multiple credit cards to a single credit card with a lower interest rate.
- Debt consolidation loans: Similarly, taking out a debt consolidation loan allows you to transfer multiple debts to a loan with a lower interest rate.
With both approaches, the aim is to switch from managing multiple payments to making a single, lower monthly payment, which will help you get out of debt more quickly.
3. Find and dispute errors on your credit report
In some cases, your score may be lower than it should be due to errors on your credit report.
If this is the case, then you can quickly improve your score by disputing your credit report with the three major credit bureaus. They’ll investigate your case, and if they find your dispute to be valid or are unable to confirm the accuracy of the information you’re disputing, then they’ll remove the information from your credit report within 30 days. 3
If you suspect that the mistake originated with your original creditor (meaning they reported something to the bureaus that wasn’t correct) then you should send a dispute letter to them as well.
4 long-term habits to improve your credit over time
Building your credit is a long process. Make sure that you’re practicing good credit management so that your score continues to improve.
In particular, be sure to:
1. Always pay your bills on time
Payment history is the most important factor that contributes to your credit score. A single late payment can drop your score by up to 180 points and will stay on your credit report for up to seven years. 4
Paying all your bills on time is the most effective way of establishing a good credit score in the long term.
How to manage your bill payments
You can avoid missing payments by scheduling reminders for yourself. If paying manually is a hassle and you’re confident that you’ll always have enough money in your bank account to pay your bills, you can also set up autopay.
If you’re financially struggling and you’re worried you’ll start missing payments, contact your credit card issuer immediately. They may be able to offer debt-relief options or even modify your repayment schedule to help you avoid falling behind.
If all else fails, you can consider selling some of your belongings or finding another way to get the money to pay your bills, like taking on a second job.
2. Avoid using too much of your available credit
An increase in the credit utilization rate on your revolving accounts is one of the most common reasons for a drop in your credit score.
Try to keep the balance on each of your credit cards as low as possible while keeping your accounts active, and never let the amount of credit you’re using reach 30% of your limit. If you can keep your utilization rate in the single digits, that’s even better. 5
Ask for higher credit limits
Getting a credit limit increase helps your credit score (as long as your spending habits don’t change) by reducing your utilization rate. Your creditor might be willing to grant your request for a higher credit limit if your accounts with them have a generally good payment history.
3. Be careful about applying for new credit accounts
Because the length of your credit history is a significant factor that impacts your credit score, opening a new account can damage it by lowering the average age of your accounts. It also triggers a hard inquiry, or hard pull, which can negatively affect your credit score for six months (in VantageScore’s model) to a year (in FICO’s). 6 7
However, there’s a notable exception to this rule. FICO and VantageScore don’t want to penalize consumers for comparing rates on loans, so they often treat multiple hard inquiries for the same type of account as a single hard inquiry.
FICO applies this exception to inquiries for certain installment accounts (auto loans, student loans, and mortgages) as long as the inquiries occur within 45 days of each other. 7 VantageScore applies it to inquiries for all accounts, including credit cards, but their grace period is narrower at just 14 days. 8
All of this means that you should exercise your judgment and avoid opening new credit accounts that aren’t necessary. However, if you do have to open a new account, try to submit all your applications relatively close together to minimize the number of hard pulls on your credit report. (Keep in mind that the only way to remove a hard inquiry is if it’s been added to your report by mistake.)
4. Establish a good credit mix
The diversity of your credit accounts also affects your score, although it’s one of the least important factors.
Generally speaking, your score will be higher if you have a mix of the following two types of credit:
- Installment accounts: These are loans for fixed amounts that you repay in installments. Common examples include auto loans, mortgages, home equity loans, and student loans.
- Revolving accounts: These accounts allow you to repeatedly tap into your credit up to a certain limit and pay it back each month. Common examples include credit cards, store credit, and home equity lines of credit.
If you don’t have an active revolving credit account, open a new credit card. If your credit score is too low to get a normal card, you can still get a secured credit card. You’ll have to pay a security deposit, but you can qualify even if you have a bad credit score.
If you don’t have an installment loan, you can get a credit builder loan. This is a special type of loan designed to help you improve your payment history and credit mix.
How long does it take to improve your credit score?
How long it’ll take for your credit score to improve depends on several factors, such as your credit history, what your current credit score is, and what negative items you have on your credit reports (if you have any).
With that said, even the most damaging items will eventually stop hurting your score. After 7 to 10 years, they’ll all be erased from your credit report entirely, and your credit score will update when your report does.
Credit repair is a long process, but your credit score is sure to improve over time as long as you keep managing your accounts responsibly.
If you’re feeling overwhelmed, consider reaching out to a non-profit credit counseling company. Credit counselors may be able to help you establish a budget and work with your creditors to get you better repayment terms if you enroll in a debt management plan.