5 Ways to Improve Your Credit Score Fast
If you already have a good credit score, or you’re close to getting a good credit score, you’ll be eager to step up from “good” to “very good” or even to “excellent”. One step up in your credit score can unlock lower interest rates, better mortgage terms, and larger credit lines with better features and rewards.
Your credit score is a reflection of your financial health, and having a good credit score can make it easier to get a loan or secure financing. With the strategies outlined here and a little patience, you could increase your credit score by 100 points or more. Here’s how.
There are 5 main factors that make up your credit score. Each of these factors can be used to improve your credit score.
Tip #1 - Payment History
The single most important way to improve your credit score is by paying your credit cards, installment loans, and any other credit line on time. The key is consistency.
Since on-time payments account for 35% of your credit score, this is one of the easiest ways to improve your credit score.
In the case of credit cards, you only need to make the minimum payments for them to be counted as on-time payments and have a positive effect.
Payments that are more than 30 days late are usually reported to credit bureaus. To avoid late payments, you can set up automatic payments of the minimum payment amount on each of your credit cards, as long as you are careful not to overdraft from your bank account.
An extended history of on-time payments is one of the most effective ways to build your credit score.
Tip #2 - Credit History
After payment history, the amounts you owe will have the biggest impact on your credit score. The amount owed accounts for 30% of your credit score.
Lenders measure this not just as the total debt, but also by the credit utilization ratio. This is the amount of your total revolving credit limit that you are using.
Keep your credit utilization ratio below 30%. That means if you have a total credit limit of $10,000 on your credit cards, you will want to avoid carrying more than $3000 in debt.
People with credit scores of 795 and above use an average of only 7% of their available credit.
There are several ways to lower your credit utilization ratio:
Pay off debt. The lower your balances are, the lower your credit utilization will be.
Ask for a credit limit increase. A higher limit means lower utilization.
Redistribute debt. Using an installment loan to consolidate your credit card debt will drop your credit utilization and could lower your interest rate.
Open a new line of credit. A new credit card will add to your limit and reduce your credit utilization.
Keep old cards open. Unless they carry an annual fee, it’s a good idea to keep those old cards. Their credit limits add to your total limit and lower your utilization.
"The most difficult thing is the decision to act, the rest is merely tenacity." – Amelia Earhart
Tip #3 - Credit History
While you cannot retroactively open a credit card or line of credit to improve your credit history, you can become an authorized user on someone else’s card.
If you want to increase your credit history length, which makes up 15% of your credit score, the best way to do this is by being added as an authorized user by someone you know with a good credit score. You can do this for a temporary boost, such as when applying for a mortgage, or long-term for a sustained credit boost.
If you have a friend or relative with good credit history willing to add you to their oldest credit card, the additional time of good credit will give your credit score a boost.
But how do you ask your friend, parent, or family member and get them to say yes? Watch the video below to see the 5 easy steps you can take when asking your friend, mom, dad, or other relative and get them to add you as an authorized user.
Tip #4 - Credit Mix
Your credit mix takes into account the different lines of credit. A good credit mix includes both revolving lines of credit, like credit cards, and installment loans, like student loans, auto loans, and mortgages.
To improve your credit mix, consider what you already have.
If you only have credit cards, getting even a small installment loan, such as a credit builder loan, can improve your credit mix.
We’ve reviewed 5 of the best credit builder loans, and if you’re considering taking out a credit builder loan we recommend you check out Self or Credit Strong.
If you only have installment loans like student loans or auto loans, adding a credit card or store line of credit will improve your credit mix.
Since credit mix makes up only 10% of your credit score, this is not the most important factor to consider. But if you’ve already improved the other areas, this is a way to further boost your score. Every bit counts.
We recommend you add at least 3-5 primary tradelines to thicken up your credit profile. You can check them out here on funding tradelines.
Tip #5 - New Credit
Opening a new credit card is one strategy to improve your credit score, but only if you do it strategically. Too many new accounts or hard inquiries can hurt your credit score.
Avoid opening more than two to three accounts per year to avoid being penalized, and try to spread them out.
Once you have an account open, try to keep it open even if you do not use the card. This will increase your total available credit and improve your credit utilization ratio.