To get good rates on loans and credit cards, you need to have a good credit score. Some people have trouble with low credit scores, though, because they have late payments, a lot of debt, or mistakes on their credit report. The good news is that there are a number of good ways to raise your credit score. This guide has everything you need to know about credit scores, including what they are, why they’re important, and how to improve them.
What is a Credit Score and Why Does it Matter?
Your credit score is a three-digit number ranging from 300 to 850 that indicates your creditworthiness Lenders use credit scores to evaluate the likelihood that you’ll repay debts In general, the higher your score, the lower your interest rates on loans and credit cards.
Credit scores come in a number of forms, but FICO and VantageScore are the most common. 90 percent of lending decisions are based on FICO scores, which range from 300 to 850. VantageScore also uses a 300-850 scale. If your FICO or VantageScore is above 700, you have good credit. If it’s above 800, you have excellent credit.
Having a higher credit score can save you thousands of dollars in interest over the lifetime of loans and credit cards. For example, a person with a 720 credit score could pay $5,000 less in interest on a $20,000, 5-year car loan compared to someone with a 620 score. A higher score also makes it easier to qualify for credit and rent an apartment.
How is Your Credit Score Calculated?
FICO and VantageScore use different formulas to calculate credit scores based on five main factors
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Payment history (35% of FICO score): Whether you pay bills on time. Late payments hurt your score.
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The amount you owe (30%) shows how much you owe compared to your credit limit. High balances lower your score.
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The length of your credit history (15%) tells us how long you’ve had credit accounts. A longer history helps your score.
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New credit (10%): How much new credit you’ve obtained recently. Too many new accounts can lower your score.
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Credit mix (10%): Whether you have different types of credit accounts (credit cards, loans, etc). A mix helps your score.
In addition to these factors, your credit score takes into account how many inquiries lenders have made into your credit report. Too many hard inquiries from applying for credit can reduce your score.
12 Strategies to Raise Your Credit Score
Improving your credit score takes time and discipline, but it’s doable with the right strategies. Here are 12 effective ways to increase your credit score:
1. Pay Bills On Time
Payment history has the biggest impact on your credit score. Set up autopay or calendar reminders to ensure you never miss a payment deadline. Even one 30-day late payment can substantially hurt your score.
2. Lower Credit Utilization
Don’t max out your credit cards. Experts recommend keeping utilization below 30%. Pay down balances to reduce your credit utilization.
3. Pay Down Debt
Paying down credit card and loan balances will improve your credit utilization ratio. Consider balance transfer or consolidation loans to pay off high-interest debt faster.
4. Avoid Closing Old Credit Card Accounts
Keep old accounts open, even if you don’t use them often. Closing the oldest account can shorten your credit history and lower your score.
5. Limit New Credit Applications
Apply for new credit only when needed to avoid too many hard inquiries on your report. Check prequalification eligibility to avoid inquiries when possible.
6. Become an Authorized User
Ask a parent or family member with good credit to add you as an authorized user on a credit card. Their positive history can help your score.
7. Dispute Credit Report Errors
If you find mistakes on your credit report, dispute them with the credit bureaus to potentially improve your score.
8. Monitor Your Credit Reports
Check your credit reports regularly and dispute any errors to maintain accurate credit information.
9. Consider Credit-Builder Loans
Taking out a small loan and repaying it responsibly over time can establish positive payment history and increase your score.
10. Diversify Credit Types
Having a mix of installment loans and revolving credit cards demonstrates you can manage different types of credit.
11. Wait for Negative Marks to Fall Off
Most negative items stay on your credit reports for up to 7 years. Your score will gradually improve as these fade away over time.
12. Use Credit Score Simulators
Some banks offer free credit score simulators to show how certain actions may impact your score. Use these tools to monitor your progress.
How Long Does It Take to Improve Your Credit Score?
Depending on your situation, it can take anywhere from 6 months to 2 years to significantly increase your credit score. Having past credit mistakes or collections accounts can prolong the process. However, by consistently following the strategies above, you should see gradual points increases over time. Monitor your progress using free credit score services. With diligence and patience, a poor credit score can transform into a good one.
Summary
Your credit score plays a big role in your financial life, so take steps to maximize it. Pay bills on time, lower balances, limit hard inquiries, clean up report errors, and diversify credit types. Improving your credit score takes time, but the savings and benefits are immense. Use these comprehensive tips to boost your credit and open doors to better loan rates. With dedication, you can increase your score and achieve your financial goals.
How to get your credit score
There are four main ways to get your credit score:
- Check your credit or loan statements.
- Talk to a credit or housing counselor.
- Find a credit score service.
- Buy your score from one of the three major credit reporting agencies: Equifax, Experian, or TransUnion.
What is a credit score?
A credit score is a number that creditors use to determine your credit behavior, including how likely you are to make payments on a loan.
Having a high credit score can make it easier to get a loan, rent an apartment, or lower your insurance rate. Learn how to get your credit score, how it is calculated, and what you can do to improve it.
How To Fix A BAD Credit Score ASAP
FAQ
How do I quickly fix my credit score?
The fastest way to repair your credit is to first obtain a copy of your credit report and dispute any errors that you find. Next, pay off any outstanding debts, and make sure to pay all of your bills on time. It is also helpful to reduce your credit card balances and avoid applying for new credit.
How long does it take to go from 500 to 700 credit score?
It typically takes 12 to 24 months to raise a credit score from 500 to 700, but the exact timeframe varies based on individual circumstances.
How do I get my credit score back to normal?
Tips to improve your credit scorePay bills on time. Missing the odd deadline or two, happens. Build up your savings. Regularly pay off debt.
How do I correct my credit score?
If you find a mistake on your credit report, you should first dispute it with the company that made the report, such as Experian, Equifax, or TransUnion. You should explain in writing what you think is wrong, why, and include copies of documents that support your dispute.