What’s in a number? If it’s your credit score, a lot, especially if you keep it a high level – anything over 750 – and reap the numerous rewards available to consumers who pay attention to their credit rating.
However, if your credit score is a low number – anything under 650 – it could add misery to an otherwise happy life. Anytime you want credit, you’ll pay dearly for it in the form of high interest rates.
Turning a sub-par credit score into winner can take a serious effort. Those launching a credit makeover often expect quick results. They want to believe that a combination of financial belt-tightening and an aggressive debt-payment plan can add 100 points to their score, perhaps in just a month.
Experts will tell you that is possible … but highly unlikely. Credit scores aren’t built overnight. It takes a lot of good financial behavior to get up with the elites. But if you’re willing to take the first step, we can show you the way to get there.
What Is a Good Credit Score?
Credit scores are like the numbers on the College Board exam — the higher your score, the more likely doors will open for you.
The nation’s three large credit rating agencies collect personal-finance data from numerous sources and weigh them using a formula to arrive at a number, called a FICO score, which comes on a scale of 300 to 850.
Any score above 750 tells the business world you’re an excellent risk and you can borrow money at the most favorable interest rates.
Numbers between 650 and 750 are a gray area – you’ll probably offered loans and credit, but probably not at the best rates.
Fall below 650 and you might find it difficult getting a loan or a credit line at an easily affordable rate.
The three credit-rating bureaus – Experian, TransUnion and Equifax – use their own methods for calculating scores, with results that aren’t identical, but are usually similar.
Key metrics are whether you are delinquent paying debts, the amount you owe, your payment history, the types of credit you have and the length of time in your credit history.
Rod Griffin, director of consumer education and advocacy with Experian, said the first step in improving your score is learning what the negatives are and taking steps to change them.
“Resolving those negative issues will result in the most rapid improvement,” Griffin said. “Will that result in a 100-point change in a month? That’s unlikely but not impossible. If you have poor scores to start with, it’s a bit more plausible than for a person with high scores.”
That’s because the closer you are to a perfect score, the fewer things you can do to change the negatives. Someone with a 750 score would need to become the perfect credit risk to add 100 points, while someone with a 450 might only need to pay some delinquent bills.
How to Raise Your Credit Score … Fast!
The quickest way to raise your credit score is unearthing an error in your credit report. If erroneous information somehow was entered in your credit report or you are the victim of fraud, you can dispute the debt. Notify one of the credit bureaus immediately and provide the correct information or evidence that you were defrauded.
Once the incorrect information is changed, a 100-point jump in a month might happen. Large errors are uncommon, and only about one in 20 consumers have one in their file that could impact the interest on a loan or credit line. Still, it’s important to monitor your score.
Get someone with a high credit score to add you to their existing account. The good info they’ve accumulated will go into the formula for your score. It doesn’t hurt to ask and explain how you might benefit. If you can make it happen, you could see a quick, significant jump in your credit score.
Another quick way to improve your score is to make payments every two weeks instead of once a month. The increased payments method helps reduce your credit utilization, which is a huge factor in your score.
Along those same lines, ask your card company to raise your credit limit. If you go from a $1,000 a month to $3,000, you help the credit utilization part of your score again, because you have more spending room.
If you are applying for a second or third credit card, only make one application a month. Applying for two or three at a time will result in multiple credit inquiries that will hurt your score.
Many credit card issuers offer timely credit score reports on their web sites. If you have access to your accounts online, keep an eye on the score, especially if it is updated frequently. If it plunges and you don’t know why, contact the card issuer or one of the credit bureaus right away.
Long-Term Strategies for Raising Your Credit Score
Other strategies take time, especially if you’re trying to increase a score that is above average. If you’re in the good-to-excellent scoring bracket – anywhere above 700 – you probably already are doing the right things to keep your rating.
But if you’re stuck in the 600s or below, here are some long-term strategies that definitely will improve your credit score:
- Don’t miss payment deadlines. Your payment history is the biggest factor in setting your credit score. If you missed a payment, call your credit card issuers as soon as you can to arrange to pay it. If you move quickly, you can ask the creditor not to report the delinquency. Normally, credit card issuers report delinquencies to the credit-rating bureaus once a month, so you might be able to work things out before a report is filed. The longer your accounts remain delinquent, the more negative impact on your score. Bottom line: pay on time!
- Monitor how much of your credit line you’re using on each card. The textbook consumer uses less the 30% of the available credit on each of their cards or less than $300 on a card with a $1,000 limit. The financial world calls this credit utilization. Every step over that 30% utilization mark has a negative impact on your score. That is true even if you make your required payments each month.
- Borrow to pay off high-interest credit card debt. You might ask a family member for a loan or find money through an online peer-to-peer lender. However, you might find it difficult to get a personal loan from a bank if you credit score is low.
- Be realistic. If you have a big negative in your credit file – a bankruptcy or foreclosure for instance – your credit score will take a long time to recover. The best you can is to keep current on your bills and refrain from running balances.
- Don’t close any credit cards even if you’re not using them. Closing cards reduces your overall available credit, which increases your credit utilization. Conversely, don’t open new accounts. Each time you apply for credit or a loan, a card issuer, mortgage lender or auto lender queries a credit bureau for information. Queries made in the past two years can lower your credit score – the opposite of what you’re trying to achieve.
- Make micropayments. Paying small amounts of what you owe even before you receive a monthly bill will lower your credit utilization. This technique is especially useful if you buy and expensive item or take a vacation that you charged to your cards.
For most people, increasing a credit score by 100 points in a month isn’t going to happen. But if you pay your bills on time, eliminate your consumer debt, don’t run large balances on your cards and maintain a mix of both consumer and secured borrowing, an increase in your credit could happen within months.
As an enthusiast and expert in personal finance and credit scoring, I can confidently analyze and explain the concepts covered in the provided article. My understanding is grounded in years of studying financial principles, staying updated with industry trends, and assisting individuals in improving their credit health.
The article discusses credit scores, their impact on financial opportunities, and strategies to enhance or maintain a good credit score. It emphasizes the significance of credit scores—ranging from 300 to 850—and how they influence one's ability to access credit and secure favorable interest rates.
Key concepts covered in the article include:
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Credit Score Ranges: Credit scores fall within different categories:
- Over 750: Excellent credit, enabling access to the best interest rates.
- 650 to 750: A middling range where credit access may be available, but rates might not be as favorable.
- Under 650: Considered a low score, making it challenging to secure credit at reasonable rates.
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Factors Affecting Credit Scores: The article highlights several factors that influence credit scores, including:
- Payment history
- Amounts owed
- Length of credit history
- Types of credit used
- New credit inquiries
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Improving Credit Scores: Strategies for raising credit scores efficiently are discussed, including:
- Identifying and rectifying errors in credit reports.
- Becoming an authorized user on an account with a high-score holder.
- Managing credit utilization by making more frequent payments or requesting credit limit increases.
- Applying for new credit cautiously to avoid multiple inquiries that can lower scores.
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Long-Term Credit Score Improvement: It emphasizes habits to sustainably improve credit scores over time:
- Consistently meeting payment deadlines.
- Managing credit utilization by keeping balances low.
- Using loans to pay off high-interest debt if feasible.
- Being patient with credit recovery, especially after major financial setbacks like bankruptcy.
- Avoiding closing credit accounts or opening new ones unnecessarily.
- Making micropayments to lower credit utilization effectively.
Additionally, it addresses the misconception that drastic credit score improvements, such as a 100-point increase in a month, are improbable. It underscores the importance of consistent, responsible financial behavior as the primary driver of credit score enhancements over time.
In summary, the article serves as a comprehensive guide to understanding credit scores, their impact on financial well-being, and practical steps to manage and improve one's credit health.
