Increasing your credit score can help boost your loan and credit card approval odds, ensuring you a large loan amount (or credit limit) under favorable terms (lower APR, long repayment window, etc.) This article teaches you how to raise your FICO score in no time, no matter your financial status or
creditworthiness.
Keep in mind that increasing your credit score doesn’t happen overnight. Follow the processes this article explains to boost your credit score.
To Increase Your Credit Score:
- Know What a Credit Score Is
- Understand The Importance of a Good or an Excellent Credit Score
- Avoid Late Payments
- Maintain a Low Credit Utilization Rate
- Leave Old Accounts Open
- Look For Mistakes In Your Report
- Learn How to Maintain a Healthy Credit Score
- Get a Credit Builder Card or a Secured Card
- Understand How Long it Takes to Increase Your Credit Score
Ready? Let’s get started.
1. Know What a Credit Score Is
Understand what credit score means and then work towards increasing yours. Your credit score is a number that ranges anything from 300 to 850 (FICO score) or any value from 501 to 990 (VantageScore) that tells a lot about your financial prudency.
To rate your credit score, VantageScore 3.0 and 4.0 models use a three-digit number 300 to 850. For both models, a higher credit score means high chances of getting financing whenever a need arises.
Financial institutions—banks, credit unions and other lenders—use your credit score to determine how well you’ve used credit in the past. You need a good or an excellent credit score to get loans at lower interest rates, boost your likelihood of getting new line of credits, and so on.
2. Understand the Importance of a Good or an Excellent Credit Score
To boost your credit score, understand why a good or an excellent credit score is important. When you apply for credit, lenders check your credit report and application details to know your creditworthiness. Below, check the benefits you enjoy with a good or excellent credit score:
- Access mortgages, credit cards or loans. A higher credit score is an advantage to get approval for loans, credit cards or mortgages.
- Enjoy lower interest rates. Convince your lenders you’re a lower risk and thus are creditworthy enough to get loans at lower interest rates.
- Borrow larger amounts. Improve your credit score to increase your credit limit (on credit cards and lines of credit, for example) and borrow larger amounts to meet your needs.
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3. Avoid Late Payments
To grow your credit score, avoid late payments. Make full, on-time payments on your bills every month to convince the lenders you use credit responsibly. Allow your bank’s bill pay system to automate your payments. Alternatively, subscribe to your credit card issuer to receive email alerts so you can avoid late payments.
4. Maintain Low Credit Utilization
To step up your credit score, maintain a low credit utilization rate. The percentage of money you spend from your credit limit is your credit utilization.
For instance, if your credit limit is $1,000, and you draw only $500, your credit utilization is fifty percent ($500 divided by $1,000 multiplied by 100 percent). To increase your credit score, maintain a credit utilization ratio that does not exceed 30%.
5. Leave Old Accounts Open
To increase your credit score, leave all old accounts open. For example, the older your current credit accounts get, the better it is to build credit. Also, you prove to your lender you can keep multiple credit accounts with older accounts.
Don’t forget that having a responsible track record of long-standing creditworthiness influences your scoring model and boost your credit score.
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6. Look for Errors and Mistakes in Your Report
To improve your credit score, check your credit report for errors and mistakes. Visit annualcreditreport.com to request a free copy of your credit score. Get your credit reports for free once a year from Experian, Equifax, TransUnion, or all of them. Find and report any errors you discover in your credit report. Dispute any mistake on your report with the credit bureau.
Note that you can only get free credit reports once a year from Experian, Equifax or TransUnion. But why pay to check your credit reports when companies like Credit Karma, Credit Sesame, Credit.com, WalletHub, and so on offer you for free?
For example, Credit.com sends you monthly updates about your credit report while Credit Karma sends updates about your credit score and reports. Sign up with these free credit reports service providers to monitor and stay updated with your credit score and reports.
7. Learn How to Maintain a Healthy Credit Score
To increase your credit score, maintain healthy credit score. It is better to have a good or excellent credit score but best to maintain it. To maintain a healthy credit score:
- Avoid multiple credit applications. Making multiple credit applications suggests to the lender you probably live on credit. Remember that each new credit application you make invites a hard inquiry, which your lenders can see on your credit reports. Hence, space out credit application to, for example, once in three months.
- Don’t borrow beyond what you need. Be careful to avoid going bankrupt by not being able to repay what you borrow. Borrow the exact money you need and ensure the purpose of the loan is justifiable.
- Watch out for fraudsters. Watch out for activities—like large orders, big-ticket items, etc.,—you didn’t perform on your credit card. Report any fraudulent activities to your lender for proper investigation. Ensure your lender remove the impact of fraudulent activities on your credit report.
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8. Get a Credit Builder Card or a Secured Card
To grow your credit score, get a credit builder or secured card. You improve your credit history or build it from scratch with a credit builder or secured card.
Consider a credit builder or secured card if:
- Your employment status does not qualify for the credit card you need, you.
- You have a bad credit score and poor credit history.
- You just clock 18 and hasn’t had enough trackable credit history.
Discover it Secured Credit Card, Capital One Platinum Secured Credit Card, Deserve Digital and so on are examples of secured credit cards.
Another way to grow your credit score is to get a builder credit card. Consider a builder credit card if you have poor credit histories. To get the card, make a deposit as collateral in case you default payments. What you deposit is equivalent to your credit limit. Always remember that builder card issuers report your activities on the card to credit bureaus. Hence, builder cards help you build your credit score.
9. Understand How Long it Takes to Increase Your Credit Score
To shoot up your credit score, understand how long it takes to do so. Actually, the time it takes to increase your credit score depends on the factors that hurt it in the first place. So check what hurts your credit score and take the necessary steps to reduce or eliminate it.
For example, if you discover that late payments hurt your credit score, decide to make on-time payments of bills. This type of effect may take a few months to reflect. However, if credit utilization is what hurts your credit score, clear your balance and your credit score soars drastically within a month.
Recap
To build your credit score, know what a credit score is, understand the importance of a good or an excellent credit score, and avoid late payments. Maintain low credit utilization, leave old accounts open, look for mistake in your report, and learn how to maintain a healthy credit score.
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