As many people know, building credit is more of a marathon rather than a sprint. There are a few strategies that can raise your score pretty quickly with minimal effort.
Credit scores help lenders assess risk when issuing loans. A higher credit score (lower risk) typically means reduced interest rates, better credit card offers, and less expensive insurance premiums, among other benefits, all of which can result in massive savings over the course of a lifetime!
However, more than 50% of consumers in the U.S. have a VantageScore that’s considered poor (550-649) or even very poor (300-549). When you apply for credit, higher-risk consumers in these buckets might be approved with unfavorable terms or totally denied all together. Additionally, a low credit score can make it extremely difficult to secure an apartment or even obtain a cellular service plan! 😦
In order to improve your credit score, it’s very important to understand the main factors that affect it and their relative weights. The most important factors affecting an individual’s credit score are:
- Payment history (35%): Do you pay your bills on time? Late payments negatively affect your credit score quickly.
- Credit utilization (30%): How much of your available credit are you using? The lower the credit utilization ratio, the better.
- Credit age (15%): How long have your accounts been open?: Credit issuers prefer consumers that have a history of maintaining accounts responsibly.
- Credit diversity (10%): Do you only use one type of credit, or are you able to manage multiple credit products effectively? A diverse credit mix, including installment loans and revolving credit, can help your score!
- Number of inquiries (10%): Do you often apply for new credit products? Each “hard inquiry” into your credit can cause your score to decrease by a few points. “Soft inquiries,” such as employer checks, self-checks, and prequalification for offers, don’t harm your score!
With all of these factors in mind, here are the easiest ways to raise your credit score…
Request a credit limit increase on existing accounts: Credit Utilization
If you have good credit and aren’t concerned about overspending, good for you! One of the fastest and easiest ways to increase your credit score is to request a credit limit increase on existing accounts. For a given balance, an increased limit lowers credit utilization, which is one of the most important factors that is affecting your credit score. For example, if you have a $2,000 balance with a $4,000 credit limit, your utilization ratio is 50%, which is high! If your card issuer were to raise your limit to $8,000, your utilization would drop to 25%. It has been found that on average decreasing credit utilization by 25 percentage points can result in a 30-point increase in credit score!!
Apply for a new credit card to raise credit limits: Credit Utilization
Like requesting a credit limit increase on existing accounts, another quick and low-effort way to decrease credit utilization is to apply for a new credit card. This low-effort, high-impact strategy can yield similar score impacts as requesting a credit limit increase with one caveat— applying for a new credit card often results in temporary credit score drop (5-10 points) during signup, which recovers in about two months. This strategy is also only an option for individuals with strong enough credit to be approved for a new card. Individuals should be realistic about their ability to manage additional cards before pursuing this route.
Sign up for automatic payments: Payment History
Since payment history is the most important factor affecting your credit score, it’s not surprising that missing payments is one of the quickest ways to ruin it. Late payments stay on your credit report for seven years (but their impact goes away after two). Sometimes missed payments are unavoidable due to insufficient funds or simply forgetting to make a payment is also very common, but easy to avoid! By setting up automatic payment for your accounts, it’s a definite way to never overlook a future bill. In fact, Americans with automatic payments are almost 70% less likely to miss a payment than those without! In a recent six-month study, users with automatic payments were able to raise their credit score an average of 27 points while those without automatic payments raised their credit score only 11 points over the same time period.
Check free annual credit report and dispute errors: General
The Federal Trade Commission estimates that as many as 20% of consumers have errors on their credit reports! Although some errors are misspelled addresses, others can harm your score. Thankfully, the Fair Credit Reporting ACT requires that each of the national credit reporting agencies provide individuals with a free copy of their credit report once per year, making it easy to check for errors. Depending on the errors that are found, requesting corrections could have an immediate positive effect on your score! Individuals that check their score regularly are more likely to discover and report issues, and track improvement over time.
Get a secured credit card: Payment History
A secured credit card is one that requires a security deposit that’s held as collateral by the card issuer. Users of the secured credit cards make payments to their accounts just like they would for any unsecured card; the major difference is that the credit limit on a secured card is backed by the cash security deposit. These cards are great options for consumers with poor or limited credit history who are unable to get approval for a traditional card. Paying off the balance of an unsecured card in full (and on time) every month will help your credit score steadily rise! It has been found that establishing improved payment history through the use of a secured credit card, Americans with limited to no credit history were able to increase their credit score an average of 63 points over a 6 month period!
Monitor credit score monthly: General
Credit monitoring is a great tool that allows consumers to track changes in their credit reports and scores over short time frames, such as monthly or in real-time! Credit monitoring is especially helpful when it comes to identity fraud. For example, most people are unaware of fraudulent activity until they attempt to take out a loan or open a new account. Someone that uses a credit monitoring service, on the other hand, would receive an alert every time someone opened a new account in their name. Users increased their scores an average of 42 points over a six month period compared to an average 17 points for users who didn’t.
Become an authorized user: Payment history
If you have a bad credit history, another simple way to increase your credit quickly is to become an authorized user on someone else’s account. Assuming the primary account holder pays the bills on time and keeps a low balance, your credit score may benefit from the account holder’s good payment history (take notes from them)! However, if the primary account holder does not manage the account responsibility, your score will suffer as well. If you do decide to go this route, be extremely careful with who you ask.
Change payment due dates: Payment history
One main reason for missing payments is due to cash flow. For example, if your credit card bill is due on the 4th of the month, but your paycheck doesn’t go into your account until the 10th, this can definitely create an issue where you are short on cash when your payment is due. An easy fix for this (if your credit union or bank allows you to) is to adjust your payment schedule so that it lines up perfectly with when you are paid or have the funds in your account.
Leave old accounts open: Credit age, credit utilization
Credit age is a measure of how long you’ve maintained your credit accounts. Lenders prefer consumers who have a history of managing credit responsibility. With regards to credit scores and accounts, the older it is, the better! Also, leaving accounts open helps with credit utilization as they increase your available limit. There are recommendations for consumers to leave accounts open, explaining that “the goal is to keep some revolving accounts, use them to demonstrate that you can manage credit, and keep your utilization ratio low.”
I hope you score well.. 🙂