Unless you’re able to pay for all of your expenses with cash, your credit score will determine what type of loan and interest rate you will qualify for when it comes to your expenses. Your mortgage, car loans and credit cards are all determined by your credit score.
The higher your score, the more likely the bank will be to trust you on repaying the loan. Your credit score can also affect your ability to get a job, find an apartment, or even get insurance. They are used more than most people realize.
Your credit score will determine whether you will get approved for credit cards, auto loans, mortgages, or other loans, as well as impact the interest rate you’ll pay. If you aren’t happy with where your credit score is today, take heart:
Of course, the best way to maintain a high credit score is to pay all of your bills on time and have a low debt-to-income ratio at all times. Assuming you’re doing that and you have no huge red flags, such as a bankruptcy, here are several other ways in which you can increase your credit score in as little as just a few months.
1.Maintain accounts in your own name:
If you’re a college student still spending mom and dad’s money, or you’re an unemployed spouse with accounts in your partner’s name, it’s time to set up some accounts in your own name. That will give you the chance to build your own credit history. Most accounts with monthly bills, including for utilities or credit, can help fill out your credit history.
2.Don’t become a victim.
Credit scores can be ruined quickly if a thief steals your identity and starts creating new accounts and building up debt in your name. To reduce the chances of becoming a victim, review your account statements carefully each month to spot any errors and alert your card issuer if you see any problems.
Avoid sharing personal details on social media that would make it easier for someone to hack into your accounts, too, and use hard-to-guess passwords on financial accounts.
3.Ask to have items removed
Maybe you made a late payment on your mortgage two years ago or perhaps you stopped making payments on your MasterCard because your income went down last year. We’ve all had rough periods in our life and that doesn’t make you a bad person.
Call the creditor and ask if there’s anything that can be done to have that “blip” removed from your report. You may have to pay the balance in full or write a letter explaining what happened, but if it works, your credit score will be instantly boosted and there is absolutely no harm in trying.
Once your credit score is where it needs to be, you have to continue working to maintain your high score. Keep your debt down, automate your payments so you won’t miss any and pay off your credit cards in full every month. Also, pull your credit report on a yearly basis.
If you have a major black mark on your credit card if you’ve filed for bankruptcy, for example – it will take time to put some space between that event and your score. In most cases, it takes about seven to 10 years to erase the negative effects of a bankruptcy filing from a credit report.
5.Pay off debt.
If you’ve already tried to make the denominator of your credit utilization ratio bigger, it’s time to focus on making the numerator smaller. Paying off debt is the best way to do that. By lowering your total balance owed, you lower the total amount of interest you pay, and improve your credit score at the same time.
6.Sign Up for a New Credit Card
If you’ve got a lot of credit card debt, getting another credit card may not be the wisest thing to do. But if you need to raise your credit score quickly, this may be your only option. If you can, try to get a card with a 0% intro balance option, which will allow you to transfer your existing debt over and at least get a break from paying interest each month
7.Keep Cards Open
You should not close any existing accounts, as each one continues to contribute to your credit history. In fact, many people hold the mistaken belief that closing credit card accounts will help their credit score, when it will likely have the opposite effect.
The longer you’ve had your accounts, the more it adds your score. Even if you’re no longer using your old credit cards, you can cut up the cards or lock them away, but don’t cancel them.
If you have multiple cards from one issuer, consider consolidating the newer cards into the older cards. You can do this by calling customer service and asking if they offer this, but only do it if they keep the total credit limit the same.
The goal of this move is to increase the average age of your revolving lines of credit without reducing your total credit limit, which will affect your credit utilization ratio.
8.Have your credit limits increased
After you’ve paid down as much debt as possible, call your credit card companies and ask if they can raise your limit. This increases your total available credit and reduces the percentage of debt to available debt that you have, which looks good to lenders. A fair warning – do not increase your spending to go along with this higher credit limit.
9.Take an in-depth look at your credit reports
Typically, accounts that are in collections remain on your credit report for seven years, so if it’s been longer than that and you still see those items being reported, make sure to call and have it removed. You can get your credit reports every year for free or you can just use a service like Credit Sesame.
Everyone has been told that budgets are helpful, but this is especially true for people trying to repair their credit. Having separate funds for daily expenses and debt can make managing your money a lot easier.
11.Set Up Alerts
Many credit card issuers let you set up email alerts related to your spending. If yours does, set it so you get an email when your balance reaches 20% of the card’s credit limit. Once you get that email, you can start using another card or pay down the balance before charging more.
12.Avoid expensive credit repair companies
You may see adverts from firms that claim to repair your credit rating. Most simply negotiate with any companies that have sought County Court Judgments (or decrees in Scotland) against you.
Others claim they can do things that – legally – they can’t, and some may even encourage you to lie to the credit reference agencies. Don’t even consider using such firms.
There’s no reason you can’t improve your credit rating yourself so there’s no point paying someone else to do it.
Making your loan or credit payments contributes 35 to your credit score, according to FICO. Delinquent payments, even those that are just a day or two late, can seriously harm your score. Be careful of the balance you rack up every month.
Big balances can harm your credit score, even if you pay them off. MSN advises that you charge between 10 and 30 percent of a card’s limit each month and pay it off in full to increase your score. You can also read Tom Corson-Knowles book titled 33 ways to raise your credit score.
14.Strike a balance between paper and plastic.
Having a record of on-time payments for both revolving accounts and installment loans should help your credit score. In fact, having a mix of credit types on your credit report is normal for people with longer credit histories and can add slightly to their scores.
However, you need to make sure you’re striking a balance as to how you pay these off. If you have only an installment loan (for example, a car loan) and then pay cash for everything else, you might actually be hurting your credit score. That’s because having and using a credit card responsibly can convey prudent money management—which in turn can boost your credit score. But, if you need the discipline of using paper over plastic to keep your debt in check, do so.
15.Become an Authorized User
Ask a friend or family member to add you to one of their older credit cards as an authorized user. The older your credit history, the better. If your mother agrees to put you as an authorized user on a card that she has had for 20 years, you could see your score increase dramatically.
And with the authorized user plan, you don’t even have to have the card in your possession.
16.Make more than the minimum payment.
If you make only the minimum payment on your credit card each month, it may take longer than you think to pay off your balance. For instance, say you have a balance of $1.500 on your credit card with the modest interest rate of 14.99% and make $100 in new charges each month.
If you pay a minimum of $125 per month, it will take you more than 10 years to pay off your credit card debt. Increasing your monthly payment to $174 per month means you can pay off that debt in 2years and save hundreds in interest charges.
17. Correcting errors on your credit report should boost your score immediately;
Paying down balances takes a little longer to work (depending on how much you pay off and how often your lender reports to credit bureaus), so you may see results in a few weeks or a few months;
Paying off delinquent accounts gives you some leverage with lenders, but improvement in your actual credit score will be slow, so be patient.
Image courtesy of scottchan at FreeDigitalPhotos.net
Image courtesy of Serge Bertasius Photography at FreeDigitalPhotos.net
Image courtesy of Stuart Miles at FreeDigitalPhotos.net