Your three-digit credit score is the key number. This gives lenders and credit card issuers an idea of how well you’ve managed your credit and paid your bills in the past. If you have a low credit score, it may be difficult for you to get a loan or credit card. And if and when you do, they will come with high interest rates.
Any credit card, loan, and mortgage payments you make each month are reported to three national credit bureaus: Experian, Equifax, and TransUnion.
If you pay these bills on time, your credit score will go up. But if you pay any of these bills 30 days or more late than the due date, your creditors and lenders will report them as late to the credit bureaus, causing your credit score to drop.
Fortunately, you can improve a poor credit score. Once you do this, you can qualify for loans with lower interest rates and credit cards with valuable rewards programs. The main thing is to pay bills on time and reduce existing debt.
Follow these steps to improve your credit score
If you have a bad credit history, there are several steps you can take to improve it:
Reduce your credit utilization ratio
Your credit utilization rate measures how much of your available credit you use. The lower this number, the better for your credit score. If you have a lot of credit card debt, paying it off can improve your credit score.
You can turn to balance transfer offers to pay off your credit card debt. Some balance transfer cards even offer a 0 percent starting annual interest rate – usually for 12 to 18 months. This gives you the ability to pay off your existing credit card debt without having to pay interest on it. Just make sure you pay off the debt you transferred before the zero interest offer expires. If you do not, your remaining balance will be charged at your card’s normal annual interest rate.
Become an authorized user
As an authorized user, you are added to an existing user’s account. You will be sent your own credit card which you can use to make purchases, but the primary account holder is still responsible for making payments.
When the primary account holder makes timely credit card payments, they are also reported to the national credit bureau on your behalf. This creates a record of timely payments in your credit file, which can help you build a credit history or improve a bad credit score.
Most often, parents add their children as authorized users to help them improve their credit score. If you are an authorized user, please ensure that you only spend the amount agreed upon by the account’s primary cardholder and you.
Make timely payments
Paying your bills on time is the most important step to improving your credit score. Paying 30 days late on loans reported to the credit bureaus, including mortgages, auto loans, student loans, credit cards, and personal loans, can cause your credit score to drop by 100 points or more.
Link non-traditional accounts
Typically, many payments that consumers make, such as rent, medical bills, utility bills, and phone bills, don’t end up in credit bureaus. Thus, they do not help increase your credit score. However, you can register with rental agencies that will report your rent payments to credit bureaus, such as Rent Reporters, Rental Kharma and LevelCredit.
Be aware, however, that while reporting rent through these services may help your VantageScore and some alternative versions of your FICO score, it will not help raise your FICO score, which lenders most commonly use when determining whether you qualify for mortgages. and other loans. .
You can also sign up for services like Experian Boost and UltraFICO. They are linked to your checking, savings or money market accounts to give credit bureaus a better understanding of how you manage your money. The goal is to help consumers who are in default or have not used credit cards to build a solid credit score.
Again, while this may improve some versions of your credit score, it won’t help them all. Experian Boost will raise your FICO score to 8. However, lenders may not use this score when determining if you qualify for a loan. And the UltraFICO assessment is now only being offered to a small group of lenders in a limited pilot phase.
Open a credit builder loan or secured credit card
Some banks offer builder loans, small loans you take out for the sole purpose of paying back a debt. Making payments on time will help you build a credit history if you don’t have one. Just make sure you pay on time and that you can afford the monthly payments.
If you don’t have a credit history, you can also apply for a secured credit card. They act like traditional unsecured credit cards, but with a credit limit tied to a deposit you make with the card’s issuing bank. So let’s say you put $600 in the bank. You will then have a secured credit card with a $600 credit limit.
If you have a secure card, use it for small payments within a month. Pay these expenses on or before the due date, and these timely payments will be passed on to the credit bureaus, which will help improve your credit score.
Limitation of credit requests
Don’t apply for too many credit cards or loans at the same time. Every time issuers or lenders make a tough loan request, your credit score takes a small hit, usually around five points. Apply for too many loans or cards at once and those small gains can add up.
How long does it take to improve your credit score?
How long does it take to improve your credit score? Unfortunately, there is no single answer. Credit bureau Experian says this can take anywhere from a few months to a few years depending on how damaged your credit history is. There are no quick fixes. You need to stick to a long-term strategy of timely payments if you want your results to be in the “good” or “excellent” range.
bottom line
A high credit score can make your life easier when you apply for loans and credit cards. Fortunately, building a good credit score is far from impossible. Just follow the simple rules: make your payments on time every month and pay off your credit card balances and other debts. Do this consistently and your credit score will rise steadily.
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The editorial content on this page is based solely on the objective judgment of our contributors and is not based on advertising. It was not provided or ordered by credit card issuers. However, we may receive compensation when you click on links to our partners’ products.
