We all know that a good credit score is a gateway to a number of things: better credit cards, lower rates for loans and even more priority rental options. It seems like we’re always told to “pay off our debt,” but there must be more things we can do to give our credit scores a boost.
Thankfully, there are actually a lot of short term and long term fixes you can make to shape up your credit score. Something to keep in mind is that there are no real “quick fixes” that can raise your credit score numbers in a day. Raising your credit score is mainly about repairing your credit history and making sure everything is current and on track.
Before diving into all of the different methods, there are a couple terms you should learn and keep in your back pocket.
Debt-to-income (DTI) ratio is one of the numbers lenders look at to determine your ability to repay your loans. You can find this number by dividing the total cost of your monthly bills with your gross monthly income. A low DTI is an indication that you’re more likely to make your payments each month. This number does not directly affect your credit score, but it is an important factor when applying for loans and credit cards.
Credit utilization is very important for your credit score. Utilization is how much credit you’re using in comparison to how much credit you have available. For example, if your card has a $500 credit limit and you use $100, your utilization is 20% (100/500=.2 or 20%). Some lenders prefer that you keep your overall utilization for all your credit cards and lines of credit, in addition to each individual account’s utilization, is kept below 30%. Like DTI, the lower the better!
Now that you know a few terms, let’s dive into the factors that affect your credits core.
What Affects Credit Score Numbers?
Many factors affect your credit score. Here’s a few points to keep in mind when you’re starting to raise your credit score.
This is one of the most important factors. Late and missed payments make the biggest impact on your credit score. The longer a payment is delinquent, the more it negatively affects your score.
Amount of Debt
Your credit utilization directly plays a factor here. Again, make sure you keep your credit use far below the overall credit you have available.
Age of Accounts
Your credit age is based on the average of all of your total accounts. For example, if you have a 5-year-old card and a 2-year-old-card, then you’re average age is 3.5. Closed accounts that were paid off properly will normally stay on your credit report for 10 years whereas charged off accounts (accounts closed because of delinquency) will stay on your report for about seven years.
This is important because your credit age is lowered when older accounts are removed from your account. In many cases, consider keeping old healthy accounts open to maintain your credit age.
This doesn’t affect your score as much as the above, but it’s important to consider keeping a mix of credit cards and loans if you’re able to keep up with payments. A healthy mix of accounts reflects positively on your score and can give you a small boost.
History of Credit Applications
This encompasses a few things like hard inquiries and opening new accounts too fast. A hard inquiry occurs when you allow a lender to check your credit report and credit scores before making a lending decision. Hard inquiries can also occur for other things like if you’re applying for an apartment and the landlord wants to determine if you can make your payments. According to Transunion, applying for a lot of new credit and, in turn, triggering multiple hard inquiries may indicate that you have money issues and make you appear more risky. Opening too many new accounts at the same time can also have a negative impact on your score. Not to mention, it also lowers your average credit age.
4 Ways to Improve Credit Score Numbers
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Once you know your score, there are a handful of things you can do right now that might improve it. These fixes won’t immediately reflect on your score, but they are quick fixes you can do to put your score on the right track to grow.
1. Limit hard inquiries
As mentioned earlier, too many hard inquiries can negatively impact your credit score. If you are in the market for a new card or loan (a car loan, for example), then you want to make sure you plan your loan shopping around the same time. The credit bureaus understand that you’ll want to shop around for the best rate. Credit scoring model sometimes see if you’ve made multiple inquiries in a short amount of time are sometimes considered one inquiry instead of multiple ones.
It’s important to know the difference between a hard inquiry and a soft inquiry. A soft inquiry usually occurs when you check your own credit score through sites like Turbo or when a lender is pre-qualifying you for a card or loan. This does not impact your credit score and is a good inquiry to make so you can check your status.
2. Become an authorized user on another person’s card
A friend or loved one with a high credit score can add you as an authorized user to their card. This means that their positive history and low credit utilization can help boost your score since your name is also on his or her account. It’s an added bonus if they also have an high credit age (at least five years or more).
As an authorized user, you can make charges to the card in exchange for limited freedoms and responsibilities. For example, you’re not required to pay the bill but you’re also not able to request a higher credit limit. Something to keep in mind is that the primary account holder’s score is not affected by yours when they add you as an authorized user.
It’s important that you maintain a positive relationship with the cardholder. Although you may have less responsibilities on paper, you still have a responsibility to the cardholder to make wise purchases and to pay back any debt you may incur on their card.
On the other hand, the primary account holder can also negatively affect your score if he or she can’t keep up with their payments. Make sure you feel confident before pushing through with this option. You also want to make sure your status is reported to the credit bureaus so it can affect your score.
3. Move your due dates to match your paycheck if possible
Call your lenders to see if you can move your due dates. This is a good option if you have a couple bills due around the same time and an adjusted date can alleviate the financial stress of multiple expenses.
4. Set up payment reminders or make micro-payments to pay on time
Payment reminders are key if you have a hard time remembering your closing date. Create a few reminders if it helps you get into a rhythm. For example, you can set a reminder one week before about the upcoming payment, a reminder a few days before your closing date to give yourself time to make the payment and a final reminder the day-of just in case. A few reminders in the long run can help you keep your payments on your radar.
You can also make micro-payments if you have trouble paying on time. This can mean paying twice a month instead of one to make sure you have everything paid off. It can also mean making a payment to your card after every purchase.
How to Improve Credit Score Numbers and Maintain a Good Credit Score
Some solutions naturally take a bit more time and are a little more involved. The methods mentioned below sometimes require good payment history and the ability to steadily pay your debts on time. Read on to see some of our recommended long-term methods.
Payment History Tips
Get current and stay current on your bills. It’s important to first take control of any late or missed payments. This will help you build a strong foundation for a healthier credit score and may diminish additional fees you have to pay each month like late fees or overdraft fees.
If you’re late on payments, take a look at all of your bills, missed payments and income to create a game plan to get current and stay current.
Amount of Debt Tips
Lower your overall credit utilization. The sooner you can get your utilization down and, the sooner you can improve your credit health. Paying off the line of credit with the highest utilization can help lower your average credit utilization across all of your lines of credit.
Raise your credit limits. You can lower your overall credit utilization if you increase the amount of credit available to you. For example, if your original credit limit for your card was $1,500 and you use $450, your utilization is 30%. However, if you raise your credit limit to $4,000 and still only use $450, then your new utilization is about 11%. A big difference!
You can call your lender to request a higher limit, but keep in mind that this may result in a hard inquiry.
Age of Accounts Tips
Keep old accounts open. Closing accounts, especially older accounts, can decrease your overall credit age (depending on the account) and make it harder for you to open new accounts in the long term. This can be especially detrimental if your credit score is low. Get current with the accounts that you have, build positive payment history with those accounts and eventually pay off any debt.
History of Credit Applications Tips
Limit hard inquiries. Hard inquiries can have a negative impact on your score. If you are in the market for a new card or loan (a car loan, for example), then you want to make sure you plan your loan shopping around the same time.
Avoid opening multiple new accounts around the same time. Some people do this to have a better credit mix. Although having a mix of accounts is good in the long term, it can hurt you if you’re unable to keep up with payments and solely open new accounts to raise your credit score. Rapidly opening new accounts around the same time can look risky to lenders, decreases your average credit age and potentially makes it more difficult to open other accounts.
Learning how to raise credit score numbers is a matter of understanding your own credit history and actively making positive decisions that directly affect your score. Another key thing to remember is to make sure all of your efforts are reported to the bureaus. This usually takes a call to your lender or a few calls directly to the bureaus. If all of your information is accurate, payments are up-to-date and your utilization is low then you’ll be on the right path to a raised score.
Sometimes processing and formulating all the ins and outs of your credit score can add more stress than you need. Seeking assistance to help organize your thoughts and make a game plan is the right way to go if you need a hand or two to start raising your score. Turbo is completely free and gives you tips and tools for a clearer picture about where you stand and your next steps. Before you get started, take a look at your three important numbers to see where you really stand and get personalized insights every step of the way.
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