Whether you’re trying to improve your credit score after it has taken a hit or you’re just trying to give your score an extra boost in order to get the cheapest mortgage rate available, chances are that you could use a little help along the way. Here are some great tips to help you quickly increase your credit score:
Check your credit report for errors
In 2013, the FTC conducted an extensive study and determined that the credit reports of 21% of Americans contained errors. As an American citizen, you are allowed one free credit report every year from each of the 3 credit bureaus by going to www.annualcreditreport.com. Make sure to grab yours and look through it, and report any errors right away to instantly improve your credit score.
Keep revolving balances low
The rule of thumb to maintain good credit is to always keep your utilization below 30%, but if you are really trying to maximize your score, you should try to get that number below 10%. This means, for example, having the balance of your $10,000 credit card under $1,000 at the time when it is reported to the credit bureaus. Your credit card company usually reports to the credit bureaus on the date of your statement, so even if you go over the 10% mark during the month, make sure you make a payment before the end of your billing cycle to fall below that 10% mark. Do keep a small balance, however, to let them know that you’re using your credit card, and pay it in full between the statement date and the due date. This is a quick way to raise your credit score, especially if you already have a good credit history but tend to have high balances on your credit cards. Note that your credit lines are also included in your total revolving credit (and therefore your utilization rate).
Make sure your limits are reported correctly
While you’re investigating your credit report, take a look at the credit limit for each one of your credit cards and credit lines. A few credit card companies have been known to report your high balance instead of your actual credit limit, which might make your credit utilization look much higher than it actually is.
Pay off as much debt as you can
Combined with credit utilization, the amount of debt you carry counts for 30% of your total credit score. If you have car loans or other installment loans, make sure to pay off as much of your balances as you can before applying for a major loan such as a mortgage. Instead of comparing your balance to your credit limit as with revolving credit, the credit bureaus look at the balance you have left versus the original amount of the loan in this case, so the more you pay off the better it looks.
Eliminate collections accounts
If you have any accounts in collections, take care of them
NOW. The best way to go about this is to contact the agency and try to negotiate with them so they will mark your account as “paid as agreed” if you pay them in full immediately. In some cases they might even agree to completely remove it from your credit report if you ask, which will dramatically improve your credit score.
Always make payments on time
While you are probably already doing this is you have a good credit, it does make up a huge part (35%) of your credit score and should not go unmentioned. If you have had late payments in the past or have faced financial issues like a bankruptcy, your best bet is to use credit (there is secured credit available even to those with a poor credit score) and make sure you pay on time every month. Over time, your mistakes will weigh less and less and your good payment habits will result in a higher credit score.
Limit credit inquiries
Credit inquiries sent by lenders will temporarily decrease your score by a few points. While the impact is relatively small, a few points might be all you need to get a better mortgage rate depending on your personal situation. Limit new credit applications in the year before applying for a large loan to ensure your credit score isn’t being penalized by too many inquiries. If you must shop around for a loan, do it in a 14-day window as this will ensure that all the inquiries are treated as a single one.
Keep your old accounts open
The average age of accounts is a measure that can play in your favor if you’ve had some credit cards for a long period of time. Make sure you keep them active by using them for a small purchase here and there, and watch your credit score go up as your accounts grow older and stay active and in good standing.
Diversify your credit
If you are already doing all of the above but you feel like your credit score should be higher, you might not be mixing up the types of credit you use. If you have only been using revolving credit, you might want to take out a one-year personal loan and make timely monthly payments on it. The amount doesn’t have to be big at all, but since 10% of your credit score comes from the mix of credit you use, adding an installment loan to the mix and paying it as agreed should start to improve your credit score after a few months.
Make sure to follow all of the tips above and you’ll definitely notice an increase in your credit score given a little bit of time. The great thing about a few of these tips is that they will start impacting your score in as little as 30-60 days. Best of luck, and keep us posted with your results!
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