A clean credit report is essential. Your credit score not only affects your chances of getting a mortgage, or having a credit card approved. It also affects your monthly car insurance, mobile phone contracts, and other critical things.
What’s more, a low credit score can affect your chances of getting a loan from Montana Capital and impact your chances of qualifying for a new apartment rental.
Note that improving your credit score won’t happen overnight. You need to take certain steps to increase your credit score over time. Here are some tips on how to boost your credit score fast.
1. Leave Your Old Accounts Open
Did you know that you lose some points for each bank account that you close? Although you may want to close past credit accounts that are not in use, the outstanding amount on your credit report may still affect your score. Your credit history accounts for 15% of your credit score.
What’s more, your credit score history accounts for the age of the oldest account to your most recent account. It also considers the average age of all accounts. Experts advise on leaving your old accounts open and paying them down monthly.
2. Start Making Payments on Outstanding Debt
Paying off your debt is another way to boost your credit score fast. The amount of debt you owe accounts for 30% of your credit score.
The snowball method is an excellent way to start making payments. Begin by making minimum payments on every debt, every month. Use extra funds to pay down the card with the lowest balance, and move on to the next card with the lowest balance while still making minimum payments on other cards.
Note that late payments could mean dealing with late fees, which could impact your credit score negatively. Note down any debts you have and set up reminders of when to make these payments.
3. Use Less Than 30% of Your Credit Limit
The balance of your debt to available credit or your credit utilization contributes to FICO’s 30% score calculation.
Your credit usage could affect your score negatively. Lenders check your credit utilization, and if it’s higher, you may be considered a potential risk as you appear dependent on debt to live your life. Keep your credit utilization under 30% to avoid carrying high balances.
4. Be Patient
There’s no set time on how fast you can rebuild your credit. The process majorly depends on the type of issue you have with your credit history and the steps you are taking to increase your scores.
For example, bankruptcy can lower your score by 90% and the recovery time can be seven to 10 years. Maxing out on your credit card impacts your score by up to 30% and it can take up to three months to improve your score.
Defaulting on an account or missing payment has a maximum score impact of 50% and it can take over a year to recover.
Note that although you may experience a negative event, having a long history of good credit may be your saving grace. The event may appear on your credit report, but it could have less impact as you work on paying your bills on time and repaying old debts.
Avoid seeking help from credit repair companies or debt settlement companies. They may end up harming your credit score and not improving your credit.
5. Have a Balanced Mix of Debt
Having all your debt in one type of debt doesn’t do justice to your credit report.
Rather than having all your debt in bank credit cards, for example, consider combining different types of credit like mortgage loans, student loans, and retail credit cards.
FICO research shows that consumers with a mix of credit types on their credit reports are considered less risky compared to those with a single type of credit. It shows lenders that you can manage various loans and payments at the same time.
Note that this method may take longer to improve your score. However, it’s a good step to improve it over time.
6. Check Your Credit Report for Errors
Research shows that close to 25% of Americans have an error on their credit reports.
Misreported payments or duplicated accounts are some errors that could show up on your report. A credit report could also have information on any bankruptcies, repossessions, or accounts that have gone to collections.
Check your credit report from reputable credit bureaus like TransUnion, Experian, and Equifax at least monthly to find out if there are any errors.
If you find any errors, you need to dispute them by writing to the credit bureau. The dispute will be investigated within 30 days. The earlier you note down these errors, the sooner they can get resolved and you can start increasing your score.
Everyone’s credit journey is different, and what may work for one person, may fail to work for you. Take time to understand your credit history and speak to a financial consultant on how best you can improve your credit score over time.
The best part is that you can improve your score by making on-time payments, avoiding taking on new credit, reducing your credit utilization, and checking your credit report for errors. Although it may take time to rebuild your credit, you’ll appreciate the advantages when it comes time to make a major purchase or take out a car loan.