Your credit score offers a snapshot of your financial situation and how well you handle credit. It is also used to measure dependability and trustworthiness for anything from buying a house to getting a job. Consequently, it is important you improve your credit score as much as possible.
Your credit scores also determines how easily you can get credit and how much interest you pay. Basically, if you don’t improve your credit score, you pay more than you should. You’ll have fewer borrowing opportunities and lenders won’t offer you the best interest rates.
Fortunately, you can improve your credit score and the steps to improve it aren’t complicated or extremely time consuming. Even more encouraging, those with a low credit score will see the biggest improvements quickly.
Follow these tips to improve your credit score, and you will see results, some quickly and some over time.
1. Get Your Credit Scores
If you haven’t already done so, get your credit scores from at least two of the three major credit reporting agencies. Each assigns a three-digit number based on the information in your credit report.
Creditors use this number to quickly assess your creditworthiness. However, your scores may vary slightly between agencies, since they each use their own scoring model.
Fortunately, you can access your credit scores for free from Experian and Equifax. Transunion does not offer a free service. You an also use an independent website such as Credit Karma and Credit Sesame to obtain your credit scores. You can find more information about credit score ranges here.
2. Determine Your Average Credit Score
As mentioned, each credit reporting agency uses their own scoring model. Check your numbers against the ranking scales of Experian, Equifax, or Transunion.
While your scores may differ slightly, you shouldn’t see a radical change between each agency. If you do, there could be a problem on your credit report. If everything looks reasonable, determine your average credit score. This is your starting point to measure how well the steps you take improve your credit score.
3. Obtain Your Credit Reports
You can easily request and review your free credit reports online every 12 months from Equifax, Experian, and TransUnion on the federally authorized website, AnnualCreditReport.com. It doesn’t affect your credit score and since they are free, there’s no reason why you shouldn’t do this.
4. Correct Errors on Your Credit Reports
Review your reports very carefully, since they may contain a variety of errors. If you do spot errors, especially if they involve late payments, correct them.
You can find contact details for each credit reporting agency on the Federal Trade Commission’s website here. It will take time, but every corrected error can potentially improve your credit score, so it is definitely worth it.
Once you’ve cleaned up your reports, you need to take a close look at how credit reporting agencies assess your creditworthiness and what’s impacting your credit score negatively. You’ll want to direct your efforts to what matters the most.
5. Understand What’s Affecting Your Credit Score
Credit reporting agencies look at five major factors to determine your credit score and weight them by importance. These include:
Payment history (35%)
Paying your debts on time is the most highly-rated factor used in your credit score. It determines lender risk and what they’re willing to offer you.
Outstanding debt (30%)
You can carry debt, but it needs to be a reasonable amount. Otherwise, creditors consider you riskier since you are more likely to default. According to Debt.org, your debt-to-income ratio should not exceed 43%.
Credit history (15%)
Generally, the longer your credit history, the better. Fortunately, if you have a short or non-existent credit history there are things you can do to strengthen it. We discuss this further on.
Credit mix (10%)
Credit agencies want you to handle a good mix of various types of credit well. The various credit forms include credit cards, retail accounts, installment loans, finance loans, and mortgages. If all you have are credit cards and retail accounts, an installment loan can help you increase your credit mix. We discuss this in detail further on.
New credit (10%)
New credit is a double-edged sword. If you open several new credit accounts in a short period, it could negatively impact your credit score since you can appear riskier. However, obtaining credit slowly can lower the ratio between your total credit limit compared to what you’re using (credit utilization), which increases your credit score.
6. Improve Your Credit Score
Unfortunately, if there’s negative information on your credit report, but it is valid, you can’t just ask for it to be erased. The credit bureaus can legally report this information for seven years, and bankruptcy information for 10 years.
However, you still have many other ways available to improve your credit score. If you don’t, this and other reasons can lead to a loan denial.
Of course, every person’s credit report differs. Consequently, there’s no set method that works for everyone. However, everyone can find ways to improve their credit score. The benefits of a
are undeniable. Just take a look at the following suggestions if you want to boost yours:
Set Up Automatic Bill Payments
Payment history has the highest weight of all factors on your credit score. As a result, it is extremely important that you make payments on time. Set up automatic bill payments so you never miss a due date.
Improve Credit Utilization Ratio
Your credit utilization ratio is calculated by dividing the total credit limits on your revolving credit (credit cards, lines of credit) by what you owe. Experian suggests your credit utilization ratio should be 30%, or less. The other credit reporting agencies have their own opinions on the ideal credit utilization ratio. If you are above the recommended ratio, you should pay down debt.
When possible, pay your credit card balances off monthly. Otherwise, keep the outstanding balance to 30%, or less. You can also ask for a credit limit increase online or over the phone, providing you don’t spend more. Consolidating debt may also help improve your credit scores.
Become an Authorized User
Some credit cards allow an authorized user to piggyback off the good credit history of a primary cardholder. A common example is a child using their parent’s card.
According a Credit Sesame study, this scenario can definitely boost your credit score quickly and sometimes significantly.
Apply for Credit Wisely
We already mentioned that you shouldn’t apply for multiple credit vehicles within a short period. However, you should also be careful about how creditors access your information when you do apply.
Creditors may use a soft or hard credit inquiry. Soft inquiries, often connected to a pre-approval process, do not affect your credit score. Hard inquiries reduce your credit score by as much as 12-points. Make many of them within a short time, and it can make it seem you can’t get credit.
Fatten Up Your Credit Report
According to a 2022 Transunion study, about 45 million Americans have little or no information on their credit report. However, you can report alternative data to boost your credit score.
Experian Boost and is a free service that shares your financial information and paid bills with the credit bureaus. The company claims two out of three credit scores improve, often immediately. UltraFICO also allows you to build your credit history by reporting your financial information.
You can add your timely monthly rent payments to all three credit reporting agencies through either Rental Kharma or RentTrack. The free app Altro reports recurring subscriptions and payments.
Get a Secured Credit Card
A secured credit card is basically one that you preload with a cash deposit. It’s used like a normal card, and the right card reports your timely payments to all three credit bureaus. Always keep your balances low and pay your payments on time. Remember, your payment history is the most important factor used in your credit score. As a result, you could potentially improve your credit score within months.
Resolve Delinquent Accounts
If you’ve fallen behind on payments, contact the creditor to work out a plan. Every month your account is marked delinquent, it hurts your credit score. While your late payments will still appear on your credit file, your history of timely payments will eventually overshadow them.
You may also want to negotiate a settlement for accounts that have gone to collections. It won’t erase them from your credit file, but more recent credit score models ignore paid-off collections in their calculations. Since this information stays on your credit history for up to seven years, it’s definitely worth considering resolution.
Consolidate Your Debt
An installment loan it can be worth it to consolidate your revolving credit debt such as credit cards and retail accounts. You make one payment, pay simple interest, and interest does not accumulate on the unpaid balance.
Luckily, it is possible to get an installment loan, even if you have bad credit or a low income. The right loan can help you pay down your debt faster, diversify your credit mix if this is your first loan, and increase your credit utilization ratio. More importantly, timely payments definitely play a major role in boosting your credit score.
The Bottom Line
Improving your credit score is always a good idea, since it affects so many things in your life. Whether you want to buy a car or home, get the best possible interest rates, or even land your dream job, a good credit score is essential.
While improving your credit score isn’t always instantaneous, even gradual improvements benefit you in the long-term. However, some tactics such as switching your revolving credit to an installment loan can make an immediate, positive impact. Please check out this article for more information on credit scores.
Luckily, FlexMoney is perfectly positioned to help you with an installment loan. Check out our loans if you’re interested in exploring one of the simplest ways to improve your credit score now.