5 Quick Fixes for Boosting Your Credit Score Today
Ah, your credit score. The key to everything from a home mortgage to low interest rates, and everything in between. Some employers are even known to run credit checks on potential employees before offering them a position. Your credit score has a huge impact on almost every area of your financial life.
So, what are you to do if you don’t have the best credit, especially if you need it to improve now? While there is no magic solution or fairy godmother to bump you into the land of 800+ FICO scores, there are a few steps you can take to quickly improve your credit.
Before we get into those, though, let’s take a look at what makes up your credit score. That way, you’ll know what you’re working toward and why.
Your Credit Score Is Composed of Many Different Factors
The irony of referring to “your credit score” is that you don’t have just one. In fact, you can have tens, if not a hundred, different score options out there. It depends on who is calculating it, for what purpose, and the formula they’re using.
The two most common scores utilized by lenders are the FICO and the VantageScore. While they do vary, there are strong similarities between how the two are calculated. Of course, no one knows the exact formula that either company is using – that’s a secret locked down tighter than Fort Knox – but we do know the general factors that go into the end score. With the FICO, for example, these include:
• Your Payment History (35%) – How long have you held your debts, do you pay your bills on time, have you ever had a late payment, and how often/for how long were the late payments you do have?
• Debts Owed (30%) – How much money do you owe to lenders, and what category is that debt? (Credit card balances, for example, count against you differently than student loans.)
• Average Age of Accounts (AAoA)/Length of Credit History (15%) – How long have you held your lines of credit, how long have you been managing debt, and what is the average age of your credit accounts?
• New Credit (10%) – Have you recently opened new credit accounts and how many credit inquiries do you have from the past 2 years?
• Your Credit Mix (10%) – Are your debts mostly maxed out credit cards, or do you have a mix of a home mortgage and reasonable, revolving accounts?
Depending on your own unique reasons for having a less-than-desirable credit score, you can see where you should focus your efforts for improvement. Focus on the aspects of your score that carry the most weight (like the payment history and debts owed), and you’ll see the fastest improvement.
Rebuilding a credit history takes time. With time, for example, your negative reports will fall off and no longer have an impact on your history. A low average credit age will continue to grow, building a strong history length. Your score will organically improve… that’s why it’s called building credit, after all.
However, you may not have the luxury of waiting. Maybe you want to buy a home and know that a higher score will mean a better interest rate. Perhaps you’re vying for a great job and know that a credit check will be waiting.
Well, here are a few steps that you can take if you need that little score bump today.
If you’re carrying around credit card debt on one or more cards, simply “paying it down” may be easier said than done. However, it’s a really great way to make a quick change, if you can swing it. Is your credit utilization higher than 30% (meaning, does that debt equal more than 30% of your total available line of credit)? Then, this is really important. Now’s the time to work extra hard at paying down that balance. Get a side hustle and put every extra penny toward the debt. Sell unused tools, clothes, furniture, or electronics and pay down a credit card with the cash. Utilize a debt snowball and a bare bones budget, and get there even faster. While I wouldn’t necessarily advocate it, you can also dip into savings to pay down a revolving account, if it’s that important to see a positive bump right away. Getting those balances down as far as you can, thus lowering your credit utilization, will have immediate impacts on your score. If you can pay off a card or two -- removing that high interest, less-than-ideal balance from your report altogether – you’ll see an even bigger jump.
Call and Ask for More Credit
This one is a bit tricky, as it requires you to have some self-control. If you are using a good portion of your credit limit, one easy way to decrease the utilization is to just increase the limit. Easy, right? Well, maybe. If you have a good payment history with your lender, you can probably call and get a bump to your line of credit. This will quickly drop your utilization percentage without actually requiring any financial action on your part. For example, if you’re holding a $1,000 balance on a card with a $2,000 limit, you have a 50% utilization. If you convince that company to increase your limit to $5,000, though, your utilization just dropped to 20% with one easy phone call. Your credit score will reflect this improvement, too. Where this gets tricky is if you cannot control your spending. If you’re in debt because you maxed out credit cards and aren’t budgeting your money well enough, increasing the credit limit will only give you more opportunity to dig a deeper hole. This option should only be utilized if you can trust yourself to only pay down the debt, rather than climb higher.
Become an Authorized User
This one is in the same thread as the two above, since it also relates to your credit utilization. Except, it doesn’t actually involve your own credit card. If you have a spouse, family member, or even a close, trusted friend with a good credit history, you may want to consider asking them to add you as an authorized user on one of their credit cards. Being an authorized user means that you are able to incur debt to that account, but you are not the responsible party if the account holder were to default on their debt. Depending on whose account you piggyback, you may not even want to get a physical card. You’re not obligated to charge a single penny to the account in order to reap the credit benefits, which may be a selling point you can use when approaching your friend or family member with this proposition. So, what will this addition do for you, you may ask? Well, once you are added to this credit card as an authorized user, it will begin to be reported on your own credit history. Assuming that the account has a low (or zero) balance carried over, you will essentially be increasing the amount of “credit available to you.” As long as you don’t also increase the amount of debt reported, you’ll automatically be decreasing your credit utilization further. Taking the same example as above: If you have a credit card balance of $1,000 on a card with a $2,000 limit, you have a 50% utilization ratio. Let’s say your mom adds you as an authorized user on her emergency-only card, which has an $8,000 limit and zero balance. According to your credit report, you now have a $10,000 total line of credit and are only utilizing $1,000 of it… or a mere 10%.
Check Your Credit Report
While this may not have a direct impact, checking and reviewing your credit report can help you improve your score, both immediately and as time goes on. Be sure to check your history for any inaccurate or potentially fraudulent accounts. If you find anything amiss, try calling the lender first to see if they can correct the problem. If they cannot, or will not, you can report inaccuracies directly to the credit bureaus – Equifax, TransUnion, and Experian -- through their websites. Who knows… there may be an error that is bringing down your score, and only takes a quick phone call to fix. Regularly monitoring your credit will also help you monitor where you stand. As time goes on, you can track changes to your debt ratios, watch your credit history length improve, and see old, negative reports fall off. All of these will result in long-term score boosts.
Perhaps you hit a rough patch a few years back and missed some payments. It happens. If those late payments are playing a role in your decreased credit score, a goodwill letter might be a good place to start. Goodwill letters are sent to lenders, asking for understanding about extenuating circumstances that may have occurred in the past. If you had health problems, went through a divorce, lost your job, etc., your credit card or mortgage company may be willing to erase those 30-, 60-, or even 90-days late reports out of kindness. The worst they can say is no, after all. Considering that your payment history makes up a whopping 35% of your score, they are definitely worth a shot! Take a humble approach and explain the circumstances to your lender – you may be surprised by the outcome.
Pause the New Accounts
If you are looking to boost your credit score immediately, opening up a new credit card or line of credit is a bad idea. Remember how we talked about your average age of accounts (AAoA) and how it made up 10% of your FICO score? Well, adding a brand new credit product to that pool is simply going to drop your average like a stone. No matter why you’re considering that new account, hold off until after your credit score is pulled and utilized before moving forward.
Credit Scores Are Like Fine Wines
There is no magic wand for your credit. Building a solid history and growing your score takes time, diligence, and hard work. There’s a reason that only about 11% of the population has a score over 800, after all.
If time is not on your side, though, these quick tricks can help give you a boost in score. They won’t replace dedication and fiscal responsibility in the long run, but they can make a small difference today.