When it comes to improving one’s credit score, there are few shortcuts to make note of. The best way to improve your credit is to make every payment in full, on time. Do this, and your score will show improvement within a very short period of time.
So are there any things that can be done that are more immediate? What actions can you take to improve your credit score faster? We have some suggestions.
Pay down revolving balances.
A big chunk of your score—the 2nd largest factor after payment history—is the credit utilization rate of your revolving accounts, this category pertains to your credit card accounts. It’s vital to understand that revolving credit is a dominant force in determining your credit score. It has the potential to do great harm if you’re not careful.
Utilization is how much of your available credit card account you are using. If the total credit available is $10,000, and you are carrying a balance of $3,000, your utilization rate is 30%.
Keep it below 30% for the least impact on your credit score. The lower the better, when it comes to generating a better credit score. Ideally, pay your credit cards off in full each month to avoid finance charges. This is known in the industry as being a “transactor.” The “revolvers” are the people carrying balances from month-to-month, they incur finance fees, and that is where the credit cards make their money. You’ll actually improve your score more if you have some activity on your accounts, but that doesn’t mean incurring finance charges, simply use your cards and keep the utilization rate low.
So one big step you can take to get a quick boost to your score is to get your utilization rate in line. This accounts for approximately 30% of your score, so it’s the next best step after spending months establishing a rock-solid payment history (payment history counts for approximately 35% of your score).
We want to stress that even if you pay down or pay off a credit card account completely, you shouldn’t close the account if you can avoid it. Having more open accounts with available, unused, balances improves your utilization ratio. The utilization rate is calculated by dividing your balance by your credit limit, for each card you have and for all of them together.
Closing an account you opened many years ago may also hurt your score as 15% of your score is the length of credit history. Another 10% of your credit score is your “credit mix”, so keep accounts open to contribute to a healthy mix of credit types.
Another tactic here is to increase your credit limits. Don’t do this by opening new accounts, as that will hurt your score in the short term. But if your existing accounts can give you larger credit limits, your available balance will shoot up and your utilization rate will instantly get better.
Correct errors on your credit reports
Surveys have found that 1 in 4 credit reports has errors serious enough to affect the creditworthiness of the borrower. It’s surprisingly easy and common for mistakes or outdated info to make its way onto your credit report, and this could be dragging down your score without your knowledge.
Correcting info on a credit report isn’t as hard as it might sound. You can get a free copy of each of your 3 credit reports from www.annualcreditreport.com. If you see anything that isn’t correct, is unfamiliar, or is out of date, you can request in writing to have it removed.
Our free Consumer Guide To Good Credit has all the info you need to complete this process, including sample letters to send. It’s important that you not use a form letter from us or any source—write your own unique letter requesting your report be corrected. If the credit bureau sees an obvious form letter, they may ignore your request.
This last point is a relatively new development. Credit bureaus have 30 days to investigate any dispute you make, and if they can’t confirm the information, they must remove it. Because this time limit and the volume of consumers sending in disputes, the credit bureaus can’t keep up with the demands. So they scan letters to detect whether they are form letters, which they can then ignore as “frivolous” and move on to the next case. The bottom line is, don’t send a fill-in-the-blanks form letter, write your own.
You may be tempted to hire a 3rd party “credit repair” firm to do this work for you. We advise you to be very careful before taking this option. Credit repair is a dubious practice, and the industry is full of scammers. The Federal Trade Commission (FTC) consistently warns consumers about credit repair scams. We prefer that consumers get educated about how to correct their own credit, perhaps with the help of a reputable nonprofit organization. It’s not such a difficult process that you can’t do it yourself with a little guidance and education.
Clear up any delinquent items
If you have delinquencies on your credit history, you need to clear those up first. While they persist, they will have a constant negative effect on your score. As we stated above, the #1 factor in your score is your payment history, making up approximately 35% of your score. Past-due bills will devastate this most impactful section of your score.
So while we’re talking about paying down balances and correcting inaccuracies, the first balances to pay are past-due amounts and delinquent payments. Once everything is caught up and current, you’ll see a boost to your score and you can start looking at other opportunities to improve your utilization ratio.
Delinquent items within the statute of limitations should be satisfied, and they should be your top priority.
Anything that is unsecured debt and past the statute of limitations should be disputed – see the Consumer Guide to Good Credit or “What Can I Dispute on my Credit Report?” If you’ve had a bad account dragging your score down for 7 years or more, and it re-appears as new debt, be aware you may be the victim of what the FTC calls Zombie Debt, learn more about that here. As stated by the FTC: “Don’t accidentally reset the debt clock. If you make, or promise to make, a debt payment on a time-barred debt — a debt too old for a collector to make you pay — the statute of limitations clock may reset, and a debt collector can then sue you for the full debt amount, plus interest and fees.”
The best way to improve credit is to do so over time, making your payments in full and on schedule. But in the short term, clearing up delinquencies, correcting mistakes, and improving your credit utilization ratio can give a quick boost to your score.
We believe improving one’s credit is something consumers can do for themselves, especially with a little guidance. Look for free educational resources online to help you figure out the best steps to take to achieve a healthy credit score, or reach out for help from an accredited nonprofit financial coach.