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How to Improve Your Credit Score

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Your credit score is based on current and past loan and credit information reported by your lenders to the big three credit bureaus: Equifax, Experian or TransUnion. That information will include your account and payment history, the amount of debt you may be carrying and whether an account is open or closed or in default.

Credit-scoring factors are generally broken into five categories where each factor carries a different weight. Understanding how these factors impact your score can help you chart your path to a higher credit score.

The 5 factors that influence your credit score

Your credit score is based entirely on the information within one of your credit reports from either Equifax, Experian or TransUnion. However, different types of information in your report can impact your scores in different ways. These credit scoring factors are generally broken into five categories.

  • Payment history: Having a long history of paying your bills on time helps your credit score, while missed, late or defaulting on payments will hurt it. Even accounts that don’t traditionally get reported when you make on-time payments, such as cellphone or utility payments, will hurt your credit if you miss several payments and your account is sent to collections. Bankruptcy filings often get put into this category as well, as they represent an inability to pay creditors.
  • Amounts owed: Your current debt load is often referred to as your credit utilization ratio. This is a comparison of the reported balance on only your revolving accounts (e.g., credit cards) to their credit limits. Using only a small portion of your credit limit is best for your credit score among both individual accounts and across all your revolving credit accounts. Installment accounts, such as car loans and mortgages, aren’t factored into your credit utilization ratio.
  • Length of credit history: Having a long history of using credit responsibly positively impacts your credit scores. This includes the average age of all your accounts. That’s why personal finance experts recommend keeping one of your longest-held credit card accounts open and active. Plus, applying for too many new accounts will reduce your average age of accounts, so apply sparingly for new credit.
  • Credit mix: Lenders like to see how well you manage different types of accounts, so having experience handling both installment accounts (such as student, auto and home loans) and revolving accounts (such as credit cards) can help your credit score.
  • New credit: Applying for a lot of new credit in a short amount of time raises a red flag to lenders. Credit applications generate a hard inquiry of your credit reports each time a lender checks them to determine your creditworthiness. These can temporarily knock down your credit score by a few points each time, and stay on your credit reports for two years. However, credit-scoring models also let you rate shop without hurting your score by lumping together certain hard inquiries, such as for mortgage and car loans, that occur within a 45-day window of selecting a loan provider.

All these factors are interdependent upon each other. For example, if you’ve always paid bills on time and have an excellent credit score, a late payment could lead to a large score drop. However, if you already have a poor credit score and many missed payments, a new late payment might not lead to as large of a drop.

What’s a good credit score?

In addition to understanding how the information in your credit report can impact your score, it can be helpful to understand what’s considered a good credit score. The breakdown here can serve as a general guideline for base FICO Scores, which range from 300 to 850, and how having a score within a certain range can impact you when you apply for credit.

5 ways to boost your credit score

1. Pay your bills on time, every time

As payment history is the most important credit-scoring factor, making sure all your payments are timely will help build an excellent score. You may want to sign up for autopay on your accounts to make at least the minimum payment and avoid accidentally missing a payment.

If you use a budgeting app, you could also link your credit cards to the app to monitor their activity. This could be particularly important if you have an older credit card that you rarely use, but its information is stored in online accounts. You don’t want to miss a payment because you assume the card isn’t being used when it could accidentally get selected.

Accidental missed payments can also occur after a move if you forget to disconnect or make final payments on old utility and telecom accounts, or paper statements don’t get forwarded to you in time.

2. Pay down revolving debt

One of the fastest ways to improve your credit score is to reduce the amount of revolving debt you’re carrying, such as high credit card balances.

Credit card balances often get reported to the credit bureaus around the end of the statement period, which is about three weeks before the bill’s due date. As a result, even if you pay your bill in full each month, you could have a high utilization rate that’s hurting your credit.

The utilization calculation itself is quite simple: reported balance divided by credit limit. For example, if your card’s reported balance is $500 and its credit limit is $1,000, then the credit utilization ratio is 50% (500/1,000). Your overall utilization ratio, which is when you add up all your credit limits across several cards and divide the total amount owed across all the cards, is also configured.

Here are a few ways you can try to lower your utilization rate and improve your scores:

  • Make multiple credit card payments throughout the month

Rather than waiting for your credit card bill’s due date, try to pay down the balance before the end of your statement period. Doing so can decrease the balance that’s reported to the credit bureaus. Issuers make frequent payments easy online, so you could pay weekly or biweekly instead of monthly.

  • Increase your credit limits

You could also ask your credit card issuers to increase your card’s credit limit, which can lower your utilization rate even if your balance stays the same. However, be careful as some issuers will review your credit reports with a hard inquiry (which can hurt your score) before deciding whether to increase your card’s credit limit or not. It’s best to call the number on the back of your card to find out before you request a higher limit.

  • Consider a balance transfer card with a 0% intro APR

You may also be able to save money and lower your overall utilization rate by opening a credit card with a promotional 0% balance transfer APR offer. Then, transfer current credit card balances to that account to pay off the debt and avoid paying interest charges during the introductory APR promotion. Check out our list of best balance transfer credit cards to find one that may be a good fit for you.

  • Look into a debt consolidation loan

Another option that will quickly boost your credit score is to reduce or pay off any credit card debt with a debt consolidation loan. And, because consolidation loans are generally personal loans, a type of installment account, the new debt isn’t included in utilization calculations.

3. Check your credit reports for errors

Removing inaccurate information on your credit reports can also help improve your credit score. You can get a free copy of your credit reports from each of the major credit bureaus, Equifax, Experian and TransUnion, at least once every 12 months on annualcreditreport.com.

While credit bureaus won’t remove accurately reported negative information from your credit reports, you can dispute inaccurately reported information and ask the bureau to verify, correct or delete the item you’re disputing.

Look closely to see if there are any errors you can dispute, such as an account that’s been reported as late even when you made all the payments on time or accounts opened fraudulently in your name. You can file a dispute online and by mail, and include details or any documentation that proves the error. If the bureau corrects or removes the negative item, your score could improve as a result.

4. Wait for negative items to fall off your credit reports

Sometimes time is the best credit score healer. While you work to add positive information to your credit reports, the impact of negative items decreases over time. Eventually, negative items will fall off your credit reports and won’t hurt your scores anymore. Most negative items can stay for up to seven years or more, except for hard inquiries (which also cause the least amount of damage):

  • Hard inquiries: 2 years
  • Late payments: 7 years
  • Collection account: 7 years
  • Chapter 13 bankruptcy: 7 years
  • Chapter 7 bankruptcy: 10 years

 

5. Keep tabs on your progress

As you work to improve your credit score, you can monitor your progress with one of the many free or paid credit-score tracking programs, including one at LendingTree. Just don’t be surprised if you see different scores — that’s not necessarily an error — as scores fluctuate all the time. What you want to watch out for is any big score drops, which is when you should review your credit reports to see what may be causing the disparity.

Some programs may give you access to multiple scores or scores based on your several different credit reports, but often you’ll only get one score type based on one credit report.

We’ve created an overview of free credit-score tracking options, which scores they track, the credit report the score is based on, how frequently the score is updated and whether the program also comes with credit monitoring.

You could use several programs to track your various credit scores. However, even tracking one score can be helpful as many credit scores trend in the same direction. Just be mindful of which score you see and know that creditors may use a different score when you apply for a new account.

Credit score FAQs

Q: What is the fastest way to increase your credit score?

Reducing your credit utilization ratio. If you’re carrying large credit card balances, paying them down to below 30% of your credit limits will have the most immediate positive impact on your credit scores. Conversely, increasing your credit limits can have a similar effect.

Q: How quickly do late payments show up on your credit reports?

If you miss a payment within 30 days of your payment due payment, call the lender immediately to rectify the situation to ensure that it doesn’t get reported to the credit bureaus. Typically, creditors won’t report a late payment until 60 days past the due date, but a quick call and explanation may prevent the delinquency from being reported.

Q: How can I raise my credit score in 30 days?

If you are carrying a lot of credit card debt, taking out a debt consolidation loan to pay it off can quickly boost your credit score. You’ll need to act fast in getting the loan approved and using the funds to pay off your debts in a month’s time, however.

A debt consolidation loan can help your credit score in two ways: by reducing your credit utilization ratio on revolving debt as well as boost your credit mix.

The only downside is that a hard pull of your credit will be required when you apply for the loan, which will knock your score down a few points for a year, but that should be offset by the decrease in your credit utilization ratio since installment loans don’t factor into that ratio. Or, you can call your card issuers and ask for a credit limit increase, which will also reduce your credit utilization ratio. Or, you can call your card issuers and ask for a credit limit increase, which will also reduce your credit utilization ratio.

If you have a thin credit file — meaning you’re relatively new to credit — you can also ask to be added as an authorized user to a longstanding account of a family member that has no history of late payments and little or no balance.

Once added as an authorized user, that account and payment history will be added to your credit reports, boosting your length of credit history. Plus, you don’t even have to use the authorized user card to get that account listed on your credit reports.

Q: Should I pay a credit repair company to help me boost my credit score?

Probably not. Most of the tactics to improve your score can be done for free by yourself, such as paying down debt and paying on time. Some things only time will fix. For example, the damage caused by a late payment will lessen as you build up a more positive payment history. And some things, such as disputing fraudulent accounts opened in your name, can be fixed by filing an online dispute directly with a credit bureau.

Q: Is paying just the minimum payment the best way to improve your credit score?

No. Carrying a balance on a credit card to boost your credit score is a myth. Plus, carrying a balance incurs interest charges. When you pay off what you owe in full by the statement due date every month, you are not assessed any interest charges.

 

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