How to Increase Your Credit Score with 100 Points in 3 Months

ElitePersonalFinance
Last Update: February 13, 2021 Credit Report

A higher credit score equates to more money in your pocket. It is as simple as that!

A typical credit card for an individual who has poor credit may attract up to 20%. If you have a balance of about $5,000 on that card and make payments of roughly $150 every month, you will end up paying more than $900 in interest alone in the coming 12 months. Bump the rate to 30%, and the interest skyrockets to almost $1,200!

Now, let us say you have got an outstanding credit. You are carrying almost the same balance and making the same monthly payment, yet your interest rate maybe 12 %. You would pay only nearly $500 in interest in the next 12 months. Meaning you will save up to $400 just because your credit was decent to help you get a lower interest rate.

A slight increase in your credit score can also have a significant impact. For instance, bumping your credit score from 690 to about 720 can easily land you a card with a very low-interest rate rather than an average one. That ultimately translates to less money out of your pocket.

So how does one get good credit? Any professional will tell you that the best way to increase your credit score over the long run is to settle all your bills on time, all time – and they are right.

However, that is certainly not the fastest way to getting a better credit score. There is an often-misunderstood procedure within credit scoring models that, if you grip it, can assist you in making a significant impact on your score quickly.

Always do your homework right before purchasing a score!

Before I continue with this discussion, it is crucial to note that numerous credit scores exist – most of which are almost worthless. Why? Because the only credit score that should be important to you is the one used by the institution you are trying to borrow from. In the vast majority of cases, FICO is the source of that score.

Every major credit reporting bureau – Experian, TransUnion Equifax – offers its own FICO score. The scores can be fairly different because every bureau can have totally different information about you. Always ask your lender which credit score they will use to decide, and they will possibly tell you. That way, if they tell you that they will use a FICO score from Experian, for instance, you can check your Experian credit report for any errors or inaccuracies that may end up lowering your credit score. Adjusting such errors can greatly improve your credit quickly. However, not all credit reports have faults, and not all those errors have a substantial impact on your score, so it is not wise to depend on them when wanting to jump start your credit.

Your FICO score, which basically ranges from 300 to 850, is normally made up of 5 components of different weights.

  • 35% – Your payment history.
  • 30% – How much you owe.
  • 15% – How long you have had credit.
  • 10% – The various types of credit you have used.
  • 10% – New credit (or the amount of credit you have applied for recently).

However, whilst your payment history tops as the most vital piece of your credit score, it cost you several months and even years to improve it considerably. Are you looking for a quicker fix?

The following are the ten things you can do today to start improving your credit score over the coming few months.

Pull Your Credit Report

Firstly, you have to know where you currently stand.

It is absolutely possible to get a free credit report from the three major credit reporting agencies (Experian, Equifax and TransUnion,). Your credit report will clearly tell you why your score is low – maybe you have several open accounts, perhaps you owe way too much, or maybe you have made some late payments before. In case you find anything mistake or error on your report, this erroneous data could be negatively impacting your credit score without you even realizing it.

It is good to request a free report from AnnualCreditReport.com and then take a closer look at it. Do the listed balances match your present account statements? Are there any delayed payments that you know you truly made on time? In case you notice any errors or items you do not recognize, contact the reporting agency immediately to get it rectified.

If You are in Debt, Immediately Stop Using Your Cards

Do you presently have a credit card balance? Then – even if you are making on-time minimum payments – you need to stop digging yourself into more debt immediately.

Your “utilization ratio” determines a slice of your credit – the ratio of the sum you owe relative to your entire borrowing ability. The higher your balances (comparative to your limit), the greater the damage to your credit score.

Take all your credit cards out of your wallet, cut them into half, or you can even freeze them in your freezer – do all it takes to stop you from adding anything extra to your balances in the account. Any actions you are taking to boost your credit score will only be challenged if you continue racking up higher balances.

This could mean that you change your spending habits, cut on your budget and significantly simplify your lifestyle. Doing these things now will definitely assist you in maintaining that higher score once you attain it.

Ensure that You have Paid Any Overdue Charges

If you have skipped any payments, make up for these as soon as possible. The longer you wait, the more your credit score worsens.

Your credit report does not simply indicate whether your payment is late or on time – it also indicates how late. Less than 30 days, the late payment is always less damaging than a payment that is 60 days or even overdue payment.

Begin Paying Down Your Balances

Without a doubt, the debt-to-income ratio plays a major role in your credit score, as does your whole amount of outstanding debt. Make a plan on how you will start paying down your balances, and you can be sure that your credit score will thank you for it. (You will also thank yourself for it, as you progressively feel a load of debt lift off your shoulders).

A typical payment strategy is the “snowball method.” This strategy allows you to put as much money as you can so that you can pay down the account with the least balance; then, when it is completely paid off, you advance to the next-highest. Whilst this does not make pure mathematical sense (rationally, you would want to order your debts dependent on the interest rate instead of balance), it allows you to enjoy the psychological victory of settling your many debts. In other words, the moment you achieve a small win, it automatically fuels your motivation.

Do Not Close Your Old Accounts

Many people think that getting rid of accounts once they have paid off their debts will help improve their credit score, but it will, in fact, do the opposite. A part of your credit report is strongly determined by the average age of all your accounts, meaning that older accounts actually boost your credit score. The fact that you could pay off your old accounts consistently and hold those accounts for several years has a positive effect on your credit score.

You do not have to use these accounts – do not close them.

Build Good Credit

If your credit score is low just because you don’t have any credit history – either bad or good – open a line of credit and immediately begin making small charges and pay in full every month.

A department store card, secured card, student card, or even gas card is much easier to qualify for than a major credit card, so always apply for one of those if you cannot get approved for any major credit card. Make a routine of charging just a small amount to it every month and completely paying the balance each billing cycle. This will greatly help you build a positive history of payments, which in turn increases your score.

Become an Approved User on other Account

If your credit score is low because you have mismanaged your credit in the past or don’t have much credit history, it can be very difficult to acquire a card on your own to re-establish your good credit. This will force you to consider requesting a trusted friend or even relative if they would be willing to include you as an authorized user on one of their accounts.

And make sure that you will be in a position to fully pay off any charges you make every month — both for the sake of your relationship and credit score. Also, ensure that you don’t become an authorized user on somebody’s account if they are not prompt regarding making payments.

Try to Discuss

Most credit card companies would want to keep your business. Therefore you may be astonished to find out that sometimes they are more than willing to negotiate with you to do so. Make sure you get in touch with customer service to see if they have any options for you.

If you are having a problem making your payments, they may have hardship arrangements that will help you make payments more convenient. For instance, they might consider lowering your minimum monthly payment based on the challenges you are facing. This means you will have to generate a “late payment” on your report.

Increase Your Credit Limits

If you extravagantly use up your available credit, then you can be sure of damaging your score. If you are currently in good standing with your creditors, you can request them to increase your credit limit to improve this ratio slightly.

However, this move comes with a caution: Do this only if you trust yourself not to be lured by this higher limit. It does not necessarily mean that you can spend more money; this is simply a strategic move. If you use any of this additional credit, then you have defeated your own purpose.

Get Help

If you are in over your head, facing difficulties making your minimum payments, or are in default already, seek the assistance of a trustworthy non-profit credit counseling agency, or you can opt to talk to a financial advisor. These companies can help you negotiate with your creditors and agree on a particular payment plan that will help get you back on the right track.

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