Avoid New Credit Card Applications
As long as you’re in credit repair mode, avoid making any new applications for credit. When do apply for new credit, the lender will often perform a “hard inquiry,” which is a review of your credit that shows up on your credit report and impacts your credit score.
How many credit accounts you recently opened and the number of hard inquiries you incurred both reflect your level of risk as a borrower, so they make up 10% of your credit score. Opening many accounts over a relatively short period can be a red flag to lenders that a borrower is in dire financial straits, so it can further decrease your score. In contrast, having few or no recently opened accounts indicates financial stability, which can boost your credit score.
How Long Does Improving Your Credit Score Take
There is no set minimum, maximum, or average number of points by which your credit score improves every month, and there is no set number of points that each action will gain. How long it takes to boost your credit depends on the specifics for why your credit score is low. If the major negatives on your credit score are credit utilization, and then you pay off your balances, your score can improve drastically in a single month. If your credit is low because of multiple collections and poor payment history, then it will take several months of on-time payments to see any positive movement in your score.
What’s The Fastest Way To Build Credit
You could potentially build credit quickly by becoming an authorized user on someone’s credit card if they have a solid credit history and the card has been open a long time.
You can also build credit based on your own record by making sure you have a good credit mix, keeping your credit card balances below 30% of the credit available to you, and making payments on time each month. Building credit with consistently responsible borrowing takes time, but this is the best and most sustainable way to earn a good credit score.
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Check Your Credit Report
Your credit report is a lengthy record of your dealings with credit of all sorts, and it’s what is used to create your credit score. Three Experian, TransUnion and Equifax maintain credit reports that should contain similar information but won’t be identical. Normally, you’re entitled to get one free copy of your credit report from each credit bureau every year via AnnualCreditReport.com. During the pandemic, however, you can get free weekly online credit reports from the AnnualCreditReport.com website.
Top 5 factors for credit scores
- Payment history, 35 percent
If you find something wrong, contact the creditor and the credit bureaus and ask them to update or correct any misinformation. Your credit report will tell you how to do that. The Consumer Financial Protection Bureau has sample letters for correcting a credit report. You can also correct your report online, which is faster than relying on the mail.
Check Your Credit Report For Errors
One way to quickly increase your credit score is to review your credit report for any errors that could be negatively impacting you. Your score may increase if you are able to dispute them and have them removed.
About 25% of Americans have an error on their credit reports, so it’s important to take the time to review. Some common errors to look out for include fraudulent or duplicated accounts, as well as misreported payments.
“Most of the clients we meet with have not reviewed their report within the past year, and are often surprised by what we find to discuss with them,” says Thomas Nitzsche, a financial educator at MMI.
You can get a free credit report from the three major credit bureaus on a weekly basis by going to AnnualCreditReport.com now through April 2021.
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Utilities Phone Bills And Rent
Some types of accounts dont typically show up on credit reports. Utility bills, mobile phone bills, and rent payments all fall into this category. So, if youre paying these accounts each month, you might not be getting credit for those good financial habits.
As a consumer, you cant add accounts to your own credit reports. Only data furnishers can report information to the credit bureaus. But you can use third-party services to share information with the credit bureaus and ask them to add accounts to your credit reports on your behalf.
Experian Boost is an example of a free service that can add eligible utility, mobile phone, and rent accounts to your Experian credit report. There are also paid services you can use to add eligible accounts to all three credit reports at once.
How To Maintain A Healthy Credit Score
Follow these tips to maintain your new and improved credit score over the long term.
Leave accounts openIf you pay off a revolving line of credit , leave the account open instead of closing it. Closing old accounts will reduce your total credit age, and as a result, your score.
Only buy what you can affordA good rule of thumb is to only purchase things you could afford in cash. If you can’t afford an item by paying for it on your debit card, you probably can’t afford that plus the interest it would accrue on a credit card.
Of course, there are some notable exceptions to this rule, such as buying a house.
Be patientYou won’t improve your credit score overnight. But with sustained effort, people with bad credit can reach Very Good or even Excellent FICO scores in less than five years. The most important part of building a great credit report is consistency.
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Ask For Late Payment Forgiveness
Paying on time constitutes 35% of your FICO Score, making it the most important action you can take to maintain a good credit score. But if youve been a good and steady customer who accidentally missed a payment one month, then pick up the phone and call your issuer immediately.
Be ready to pay up when you ask the customer rep to please forgive this mistake and not to report the late payment to the credit bureaus. Note that you wont be able to do this repeatedly requesting late payment forgiveness is likely to work just once or twice.
You have 30 days before youre reported late to the credit bureaus, and some lenders even allow as long as 60 days. Once you have a late payment on your credit reports, it will stay there for seven years, so if this is a one-time thing, many issuers will give you a pass the first time youre late.
How much will this action impact your credit score?
If youre a day or two late on a credit card payment, you might get hit with a late fee and a penalty APR, but it shouldnt affect your credit score yet. However, if you miss a payment by a whole billing cycle, it could drop your credit score by as many as 90 to 110 points.
How Often Is Your Credit Score Updated
Services that show you your credit score may advertise that they update your score every month or even every week, but that doesn’t mean the credit report information your score is based on has necessarily changed.
Your credit score is calculated the moment it’s requested based on the information that creditors report to the national credit reporting agenciesExperian, Equifax and TransUnion. to the credit bureaus on their own timeline, generally once every 30 to 45 days. They may not report to all three bureaus, or if they do, they may not report to all three at the same time.
So while your credit score based on data from Experian may have been updated based on recent reporting, that may not be the case with credit scores based on data from one of the other two bureaus.
That said, if you have a lot of accounts with multiple creditors, you may be able to get an updated score several times throughout the month as each reports to the credit bureaus.
Also, the amount your credit score changes will be based on the new information from your creditors. Some credit score factors have a bigger impact on your score than others.
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Pitfalls To Avoid When Working On Your Credit Scores
When it comes to building credit, its easy to get overly focused on ways to raise your credit scores fast. The truth is that building credit takes time. So take a step back and make sure your strategy doesnt do more harm than good.
Here are a few donts to keep in mind.
- Dont apply for a bunch of new credit cards just because you want to increase your credit utilization. Even though this might help lower your credit utilization ratio, it could also make you look like a risky borrower thanks to the new hard inquiries on your reports.
- For the same reason, dont take out a loan just to improve your credit mix. Only apply for a new loan if you actually need it.
- Dont carry a balance on your credit card just so you can build credit. Carrying a balance can lead to unnecessary interest charges, and it might actually hold your scores down by increasing your credit utilization ratio.
- Dont cancel your credit card after you pay it off unless you have a good reason to do so. Closing your credit card will hurt your length of credit history, so its better to leave it open, even if youre not using it anymore. Of course, if having a card tempts you to spend more, or it comes with an expensive annual fee, you might want to rethink this conventional wisdom.
Avoid Credit Repair Scams
Some for-profit companies claim to be able to remove negative information from your credit report for a fee. But the truth is that no company can legally erase information from your file if it’s accurate. Avoid spending money on and take tried-and-true steps to improve your score instead, like lowering debt balances and paying your bills on time.
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What’s A Good Credit Score
Your FICO credit score is the most widely accepted credit metric and scores can range from 300 to 850.
A good credit score is between 670 – 739.
FICO classifies credit scores as follows:
- Poor: 300 – 579
- Very Good: 740 – 799
- Excellent: 800 – 850
If your score is above 739, then your credit is Very Good or Excellent. And if it’s below 670, then you have some work to do. But you’ll learn how to improve your credit below, and you can start today.
Become An Authorized User
If a relative or friend has a credit card account with a high credit limit and a good history of on-time payments, ask to be added as an . That adds the account to your credit reports, so its credit limit can help your utilization. Also called “,” authorized user status allows you to benefit from the primary user’s positive payment history. The account holder doesnt have to let you use the card or even give you the account number for your credit to improve.
Make sure the account reports to all three major credit bureaus to get the best effect most credit cards do.
Impact: Potentially high, especially if you are a credit newbie with a thin credit file. The impact will be smaller for those with established credit who are trying to offset missteps or lower credit utilization.
Time commitment: Low to medium. You’ll need to have a conversation with the accountholder you’re asking for this favor, and agree on whether you will have access to the card and account or simply be listed as an authorized user.
How fast it could work: Fast. As soon as you’re added and that credit account reports to the bureaus, the account can benefit your profile.
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Tips To Help Improve Your Credit Scores
Doing the things you want to do. Seeing the places you want to see. Living life with a little less worry and a little more freedom. The flexibility that comes with higher credit scores can make decisions about money a little easier. While increasing your credit scores may not happen overnight, these six tips can help you start moving in the right direction.
- Monitoring your credit can give you an idea of your creditworthiness and a chance to check your credit reports for errors.
- Making payments on time, keeping credit utilization low and avoiding unnecessary credit inquiries can help you improve your credit scores.
- Focusing on good credit-building habits, rather than quick fixes, can help improve your credit over time.
Pay Off Cards With The Highest Balances First
In addition to limiting your future spending, work on paying off your credit cards. If you have several cards with a balance, focus on the highest card balance to reduce your credit utilization ratio.
Paying down your outstanding debt can also improve your debt-to-income ratio, which is not a factor in your credits core but is used by many lenders.
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How To Get Your Credit Score To 800
A credit score in the 800s is a remarkable milestone. Although it will take time, its completely possible to achieve. Heres how to get started:
- Pay all of your bills on time.
- Never max out your credit cards.
- Dont apply for every credit card you see.
An 800 credit score is a great goal but itll likely take many years to reach this elite status as credit scores factor account ages into the score. As your average account age grows, so can your credit score.
Open A New Credit Account
To some extent, you can help raise your credit score by opening a new credit account a new credit card account, a personal loan, an auto loan, an installment loan, refinancing a student loan, etc. This helps in a couple of ways, but only in small doses:
- CUR reduction: By getting a new revolving credit card account, the CUR denominator increases. For this to have the desired effect, you should not carry a balance on the new credit card, which would offset the gain by increasing the CURs numerator .
- Increase credit mix: Ten percent of your FICO score stems from your mix of different credit types: an auto loan, credit cards, mortgages, online loans, retail accounts, and finance company accounts. FICO reasons that you are more creditworthy if you can successfully juggle multiple account types. But dont open a new account just for FICOs sake, as this is only a minor factor.
The problem with opening new accounts is that the benefits just described are somewhat offset by the hard credit inquiries required for new credit, a 10% component of your FICO score. For a single new account, the impact is minor: A five-to-10-point drop in your credit score for up to one year.
Opening a new account is probably a net positive, but multiple new accounts in a relatively short time frame may do more harm than good.
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Ask To Be Added As An Authorized User
If you have a close family member or friend you trust and who trusts you, you can ask them to add you as an on one of their credit card accounts. This is another strategy that has the potential to boost your credit score. Ideally, the account should have a long history of on-time payments with a low balance.
Also, its good to know that you dont necessarily have to have access to the account to benefit from the primary account holders good payments you just have to be on the account. If they do give you access to the account, dont do anything that will jeopardize their credit. This person is trusting you since ultimately they are responsible for the authorized user’s debt.
Apply For New Credit Sparingly
Though applying for a new credit card can help boost your credit score, its important to note that you should limit how often you apply for new credit products. Applications can hurt your situation in a few ways:
- Generating hard inquiries. When you apply for credit, this typically generates a hard inquiry, where the lender pulls one or more of your credit reports to evaluate your creditworthiness. A hard inquiry will typically hurt your credit score by 5 to 10 points, and will stay on your reports for two years .
- Reducing your average age of accounts. Length of credit history accounts for 15% of your FICO Score, and part of this is the average age of all your accounts. Opening new accounts reduces that average age, particularly if youre new to credit and dont have many other accounts to balance things out.
- Signaling that youre desperate. If lenders see a lot of recent inquiries on your credit reports, it might signal that youre desperate for credit and unlikely to pay back what you borrow and that means lenders will be more likely to reject your applications going forward.
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Tip: Pay Bills On Time
How it can help: If theres one thing you shouldnt do to your credit, its missing a payment. Payment history is responsible for 35% of your FICO score, more than any other factor. A late payment gets reported when you miss the due date by at least 30 days and can result in a significant hit to your credit score. Moreover, it will stay on your credit report for seven years. For that reason, you want to make sure you consistently pay your bills on time.
What experts say: Theres no denying the importance of on-time payments. All the experts weve talked to recommend using autopay and setting up reminders, as well as paying down the balance before the statement closing date.
Yanely Espinal, director of educational outreach at Next Gen Personal Finance, a nonprofit providing personal finance curriculum to middle and high-school teachers, has automated all of her bill payments. She also makes extra payments before the statement closing datethe last day of a billing cycleinstead of waiting to pay the entire balance on the due date.
The balance on the statement closing date is what a credit card company reports to credit bureaus, so you want it to be as low as possible. By making additional payments during the billing cycle, when Espinals statement comes, her balance on the closing date is low. It helps me to keep my credit utilization ratio very low, she says.