A credit score is a 3 digit number used by lenders to judge the ‘credit-worthiness’ of a borrower. In the United States, lenders demand a credit score of at least 720 for the best mortgage rates. The lower your credit scores, the higher the interest you need to pay on the loan. Credit scores less than 580 can also increase your chances of rejection in case you plan on applying for a loan at a bank. In this guide, we will study 11 ways to improve your credit score.
Table of Contents
- 1. Get copy of your credit report
- 2. Understand factors that are used to calculate the credit score
- 3. Pay off your debts
- 4. Solve financial crises
- 5. Avoid excessive credit
- 6. Have different types of credit
- 7. Watch out for identity theft
- 8. Establish a dialog with collection agencies
- 9. Open new accounts with high limits and low balances
- 10. Add accounts with perfect payment history to your credit file
- 11. Rotate your credit cards
1. Get copy of your credit report
Credit scores are not a direct reflection of how good or bad you are with money; rather they help lenders know whether you are debtor who has a higher chance of repaying his loan. So make sure you understand what your exact credit score is. There are three major credit bureaus that can help you know what your credit scores are and it is a good idea to know which they are. These bureaus can also send you free credit reports. They are:
- Equifax Credit Information Services, Inc
- TransUnion LLC
- Experian National Consumer Assistance Center
You can contact these agencies to get a free copy of your credit report. According to federal law, you can do so (free) every once a year.
2. Understand factors that are used to calculate the credit score
Following factors are important to understand how credit score is calculated. Knowing these will help you determine ways how to improve credit score in 30 days.
- Whether you pay your bills on time
- Your outstanding debt
- A short credit history (this can still be offset by timely payments and low balances)
- Whether or not you have applied for new credit recently.
- How many and the type of credit accounts you have.
3. Pay off your debts
The best way to improve your credit score is to pay off all your dues, bills etc before their due date. In order to do so, you may set up auto payments from the bank account but this is possible only if you are assured of getting timely payments and salary in the bank.
4. Solve financial crises
If you are looking for ways how to raise your credit score fast, you must first tide over all financial difficulties. This is simple enough to understand: you cannot fix your credit score if you cannot pay your bills. Your credit repair will have to wait until you have enough funds in the bank to pay off debts plus some left over to cover other expenses.
5. Avoid excessive credit
If you already have huge debts, then you must avoid overextending your credit. Lenders have a way of knowing that you will have a harder time making payments if your debt load grows, even though you may be paying off existing bills. For example, a person having credit limit of $1000 on his credit card who also carries $900 in his account will be an attractive borrower to lenders than a person who carries a smaller balance of $100 or so.
The bottom line: try to use no more than 50% of your credit.
6. Have different types of credit
The fastest way to improve credit score is to have a range of credit types such as personal credit (credit cards), mortgage or auto loans, etc and paying them off regularly. This is much better from the credit score point of view than having only one type of credit.
7. Watch out for identity theft
In many cases, a surprisingly lower credit score than what you expected could be attributed to identity theft. So do ensure that your credit is safe from online predators. To prevent identity theft:
- Check your account statements at the end of each month
- Avoid giving your PIN to anyone
- Report suspicious financial activities immediately
- Practice safe banking
- Install good virus protection software if you use online banking facility.
8. Establish a dialog with collection agencies
One way how to raise credit score by 200 points is to establish a dialog with the collection agencies demanding proof that the bad accounts are all yours. If they are not, you can get them deleted from the file to improve your credit score in less than 30 days.
9. Open new accounts with high limits and low balances
By opening new accounts with higher limits but using only 10-30% of credit available, you can improve your credit score dramatically in a short amount of time.
10. Add accounts with perfect payment history to your credit file
This is an easy way to increase your credit score by over 200 points. Many companies do this for you but they charge heavily for this service. You can easily do it for free. This step can also be easily completed in less than 30 days!
11. Rotate your credit cards
Use different cards as stagnant ones won’t help your credit score as much as active cards will. Do not close credit cards or apply for new ones as this reflects poorly on your credit scores. By using several different cards that you already have, you can help show lenders that you are indeed credit worthy.
By using these 11 easy ways diligently, you can see a dramatic improvement in your credit score in a short period of time and a 200 point raise in a matter of two to three months.