Did your finances take a bit of a battering lately? Whether it was because of a decline in income or a change in personal situation, your credit score (loan eligibility score) may not be up to scratch. Yourcredit score shows your financial standing andis one of the most crucialmeasures or indicators of your financial health. Also known as credit rating, this score tells lenders and banks at a glance how responsibly and judiciously you use credit.
Contents
What’s a Good Credit Score?Why a Good Credit Score MattersBetter Insurance RatesEmployment and Housing OpportunitiesHow to Improve Your Credit Score Quickly1. Review Your Credit Reports and Fix Errors2. Timely Bill Payment3. Avoid Frequent Credit Inquiries4. Become an Authorized User5. Consolidate Your Debts6. Utilize the “Rent Hack”7. Don’t Close Your Old AccountsFinal Thoughts
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If you want a good rewards credit card, you will likely need a good credit score. Looking to secure a low mortgage interest rate? Again, a good credit score can make the process much simpler. The better your credit score (more than 650 points is considered good), the easier and quicker you will be approved for a new loan and new lines of credit. But that’s not all, though. A higher score shows your creditworthiness and can open the door to the lowest or most attractive available loaninterest rateswhenever you borrow.
What about a poor credit rating or score? It can have a considerable impact on your borrowing ability, as banks and financial institutions will see you as financially unreliable. As a result, you might miss out on the best deals on various financial products like credit cards,mortgages, loans,ormobile phone contracts. And in some (worse) cases, you could get rejected altogether.
Did you know that your credit score changes constantly? Like most individuals, your ultimate goal is to get your score to go up. If so, you may have a question. How long does it take for this number to rise?Well, the period of time it takes to boost your credit score varies depending on your financial circ*mstances and situation. However, here’s the good news- you could see a noticeable improvement in your score in only 30 to 45 days, depending on the actions you take.
Boosting your credit score is what you need to unlock better loans, cheaper apartments, and maybe even that fancy smartphone you’ve been eyeing.
What’s a Good Credit Score?
The highest credit score you can have is 850, while the lowest is 300. So, what’s between these two extremes? There are several credit score ranges. Remember, the following score ranges are how 2 of the leading and most important consumer credit reporting bureaus (Equifax and Experian) classify credit scores:
- Excellent (800 to 850)
- Very Good (740 to 799)
- Good (670 to 739)
- Fair (580 to 669)
- Poor (300 to 579)
Although there’s a particular tier that is specifically known as “good,” any credit score higher than 650 or in the 700s and above is usually deemed good credit. If you are looking to increase your credit score, there are numerous quick, straightforward things that you can do to achieve your goal.
Having credit in this coveted range should be your goal. It will help you qualify for lower interest rates, better terms and conditions on loans, and other perks, including access to the best cashback or rewards credit cards.
It may take a couple of months to see a noticeable change in your credit score. However, you can certainly start working toward a better credit score in only a few hours.
Why a Good Credit Score Matters
A good credit score can have a significant effect on various facets of your financial life, from securing low insurance rates to better housing and employment opportunities. This is because credit scores measure and assess your ability to manage debt.
So, the higher your credit score, the more financially responsible or savvy you appear in the lenders’ eyes. A credit score of 850, for example, is considered perfect using the FICO model.
So, what does a high or good credit score get you? What’s the hype, you may wonder? The simplest answer is considerably better loan terms, including interest rates, and easier approval.
Better Insurance Rates
A good credit score will also help you save money on homeowners and car insurance. You may know that insurance providers often use credit scores in order to determine the rates they offer. This means that a good credit score can lead to reduced insurance premiums.
If you consistently pay bills on time and maintain a low credit utilization ratio,you can build a strong credit score.This can make you a more attractive prospect for lenders and banks,allowing you to secure a favorable loan with lower interest rates for a fancy car purchase. Maybe that Cadillac you have always dreamt of!
Employment and Housing Opportunities
Employers and landlords usually use credit scores as a glimpse into your financial responsibility. They often review and assess credit scores as part of the hiring and rental process. A good or excellent credit score can improve your chances of securing your dream home or landing that sought-after job.
Landlords often use credit scores to assess if someone is likely to pay rent on time and take care of the property. With a good score, you’ll have a wider range of options and a higher chance of your application standing out.
Individuals with good credit ratings are deemed lower-risk borrowers. As a result, more banks and credit unions are competing for their business and providing better rates, perks, and fees. In contrast, people with poor credit ratings or scores are considered high-risk borrowers, with fewer lenders and banks competing for them.
How to Improve Your Credit Score Quickly
Whether you are looking to determine how to repair bad credit or simply a couple of ways to boost your credit score, you can take many steps to make sure that your credit score is up to the mark. However, if you are trying to find a simple and quick way to increase your score and improve your financial standing, note that no single tactic will magically improve your credit score overnight.
Fortunately, there are some steps that you can take that will help boost your score in a relatively short span of time. We will show you what really works and what does not.
With some dedication and patience, the following seven strategies will have you on your way to securing a high credit score. Many of these tips and steps are not merely one-time actions. These are habits you’ll have to consistently practice until they become second nature.
1. Review Your Credit Reports and Fix Errors
Before you can work on raising your credit score, it helps to understand what may work in your favor, such as paying bills or time (oragainst you). This is where checking your credit history and reports comes in. Reviewing your credit report only takes a couple of minutes and is free.
You can pull copies of yourcredit reportsfrom each of the3 leading national credit bureaus – Experian, Equifax, and TransUnion. Next, review each report in order to see what is hurting or helping your credit scores.
Factors or variables that contribute to a better credit score include the following:
- Low balances on your credit card(s)
- A reliable history of timely payments
- A combination of different loan and credit card accounts
- Older credit accounts (may sound counterintuitive)
- Minimal inquiries or requests for new credit.
On the other hand, missed or late payments, collections, high credit card balances, and judgments are some major credit score detractors.
When reviewing your report, you may find an error. If you come across a mistake, you’ll have to file a dispute with the relevant credit bureau. Remember, no error or mistake is too small to dispute. I have disputed erroneous phone numbers. They are often corrected in minutes, which allowed me to unearth unauthorized accounts. And if the error affected your credit score, you should notice a pretty quick change (hopefully positive) once the bureau fixes the error.
2. Timely Bill Payment
It is common sense — repaying your debt on time shows creditors and lenders that you are a responsible and savvy borrower. If a bank or lender sees that you make on-time bill payments consistently, they will likely assume that you knowhow to manage financesand can handle any future loans or debt the same way.
Did you know that over 90% of top lenders and financial institutions useFICO scoresto assess creditworthiness or make credit decisions?
These scores are determined by five main factors:
- Your payment history (35%)
- Your credit usage(30%)
- Age of various credit accounts (15%)
- Credit mix (10%); and
- New credit inquiries (10%)
What does this mean? As you can infer, payment history has the most significant impact on your score. So, it is better to have paid-off loans and debts (like your old student loans) stay on the record. Keeping your available credit high and debt low is key to an excellent credit score. So, what is the best way to do this? Pay off your credit card’s balance in full each month.
Paying bills on time is important, but juggling rent, loans, and that Netflix subscription can be a juggling act. You can team up with a responsible friend or family member in order to share reminders and hold each other accountable.
Do you currently carry a significant balance on your credit card? If you can’t repay it all at once, consider paying as much as you can to lower your credit utilization. What is that? Credit utilization is the amount of debt you hold versus how much credit (total limit) is available to you. It is the second major factor that affects your credit score.
To figure out your credit utilization, take your total debt and divide it by all your credit limits combined. For instance, if you’ve $2,500 in credit card debt with access to $10,000 in credit, then your credit utilization rate would be 25%.
Hence, a simple and quick way to boost your credit score is to steer clear of late payments at all costs. Here are some easy tips for doing that:
- Create a filing system, either digital or paper, to keep track of your monthly bills
- Automate bill payments from the bank account
- Set due-date alerts. It is a simple way to know when a bill is coming up
3. Avoid Frequent Credit Inquiries
Excessive credit inquiries are problematic and can trigger a temporary drop in your credit score. Applying for new loans or lines of credit always results in the bank or lender checking your history. And this is called a “hard inquiry.” Note that too many of these inquiries can have an adverse effect on your credit score.
You are better off avoiding frequent credit inquiries since this could signal to the bank, credit card provider, or lender that you are desperate for credit.
Limit your credit applications to improve your credit score. Only apply for credit or loans when you need it. Also, refrain from applying for more than one credit product in a short span of time. Contrary to popular belief, soft credit inquiries, like employer credit checks, prequalified offers for loans, credit cards, or insurance, and insurance quotes do not impact your credit score.
4. Become an Authorized User
Have parents with stellar credit and an extra slot on their card? Why not hop on as an authorized user? Also known as “credit piggybacking,” authorized user status has many advantages. It allows you to benefit from the primary user’s (your parents) positive payment history. The best part? The account holder does not even need to let you use the credit card — or even provide the account number, for that matter — for your credit score to improve.
Their good habits rub off on your score. However, remember, with great power comes great responsibility. Don’t turn their plastic into your personal shopping spree ticket. Similarly, if your relative or a close buddy has a credit card account with an excellent history of on-time payments and a high credit limit, you can request to be added as an authorized user. This action adds the credit account to your reports. This means its credit limit can also help your utilization.
Here is a pro tip. Make sure that the account you are added to reports to all major credit bureaus (Experian, Equifax, and TransUnion) to get the highest effect. Fortunately, most credit cards report to these bureaus.
5. Consolidate Your Debts
Do you have numerous outstanding debts, such as car loans or student debt? You could benefit from securing adebt consolidationloan from a credit union or bank and repay all of them. Although it might lead to a temporary decline in your score, making on-time payments and managing your debt can help improve your score.
The best part is that you’ll only have one payment to contend with – imagine all the hassle and inconvenience that this can save. Also, if you’re able to secure a relatively lower interest rate on the consolidated loan, you will be in a position torepay your debt muchfaster.
According to a recent report from Transunion, almost 70% of consumers who used debt consolidation saw their scores increase by over 20 points. A similar tactic is to consolidate multiple credit card balances. By consolidating several credit card debts into a single new loan, you can boost your credit utilization rate and, in turn, your credit score.
These credit cards usually have a promotional period, and you are not charged any interest on your balance. However, beware of any balance transfer fees. They may cost you between 3% and 5% of the total amount of the transfer.
6. Utilize the “Rent Hack”
Paying rent is a monthly ritual, but does it count towards your credit score? It does! Rent-reporting services, such as RentTrack or BoomPay, can add all timely rent payments to your credit reports. However, not every scoring model considers rent payments — for example, VantageScores includes them, while FICO Score 8 does not. Nonetheless, if a potential creditor considers your reports, they will find rent records, and a long and stable record of consistent payments will only help.
For those without access to conventional credit-building tools like credit cards,rent reporting offers an alternative pathway to establish a positive credit history.
7. Don’t Close Your Old Accounts
Did you know that the ages of your oldest and newest accounts and the average age of all your credit accounts account for 15% of your credit rating? So, as long as you aren’t paying yearly fees on an open account, there’s no harm in letting it collect dust. This is because the longer you have had credit, the higher your score.
While yearly fees can negate or offset the benefit of keeping an old account open,assess if your card offers any rewards or perks that outweigh the cost.Travel points,cashback,or extended warranties might make it worth holding onto despite the fee.
Building credit takes time and requires some discipline. However, these moves and tips can give you a serious head start. Remember, consistency is crucial to improve your credit score. Pay your bills on time, every time, rein in spending, and watch your score soar.
Final Thoughts
Boosting your credit score quickly is a good and ambitious goal to have. This is especially true if you are planning to apply for a long-term loan to make a significant purchase, like a new home or car, or qualify for some of themost popular rewards cardsavailable.
Whether your current credit score is very low or decent, and you want to improve it further, the above strategies and steps can help. Some of the quickest and most impactful ways to raise your credit score include the following:
- Making timely payments on all your accounts
- Finding and disputing any errors or mistakes in your report
- Maintaining a credit utilization rate below 30%
- Regularly monitoring and tracking your credit score and avoiding regular credit inquiries
- Avoiding opening plenty of new accounts
It may take many weeks, sometimes even several months, to witness a noticeable effect on your credit score after you start taking the above steps to turn it around. Still, the most vital thing is to stay persistent and consistent with your efforts since it may take some time for the aforementioned strategies and changes to have an impact.
