3 Tips to Increase Credit Scores FAST
When applying for debt, a lot of weight is put on credit scoring. The difference between ultra competitive rates, terms, and lenders practically begging for your business and seeing terms that come with astronomical rates and costs can sometimes be just a few points in credit scoring. Most people know that paying bills on time is key to having great credit, but many people fail to realize there are other aspects of managing credit that have a major impact as well. And while paying bills on time is the MOST important thing you can do to ensure you have a good credit score, knowing ALL of the other things you can do to improve your scores can collectively have a similar impact, for better or worse.
Some major credit events like Bankruptcies, foreclosures, or repossessions, can hang around on a credit report and negatively impact scores for a long time. Some other things the credit bureaus view as negatives, though, can be quick fixes that can substantially increase credit scores, and fast! If you’ll soon be applying for credit, these are some things to consider taking action on before you apply to make sure you maximize your chances to get the best rates and loan terms.
Paying Down Your Debt (not paying off!)
One thing credit bureaus take into consideration in a big way when determining your credit score is the amount of debt you’re using compared to the amount of credit you have available. This is called your credit utilization ratio, and it plays a big role in your credit scores. Scores are impacted by both individual accounts, AND your entire credit profile. For example, if you have a $1000 credit limit on a credit card with a $900 balance, that would be a 90% ratio. If you have 2 cards, one with a $1000 limit and $700 balance, and another with a $2000 limit and a $1500 balance, that would be a total 73% ratio (all limits divided by all balances). To maximize your credit scores, you should aim to use less than 25% of all the credit extended to you. So if you have a card with $1000 as a limit, don’t exceed $250 as a balance. The good news though, is that if you pay down a card that is close to maxed out, the positive impact on your credit scores happens quickly, as soon as the updated balance is reported to the credit bureaus!
Because the credit bureaus look at individual accounts AND your collective credit, if you have a lot of cards that are maxed out, it may help your scores more to pay MOST of the balances on many cards instead of ALL the balances on a few cards. And always ask a credit expert before you pay off a card – having low balances is good, but paying off and closing your cards can actually have a negative impact on your scores. Banks want to know you can responsibly use your credit, so keeping small balances and paying them down or off regularly will maximize your scores.
Make a phone call!
These days, you may not even need to make a call! Most creditors (for credit cards) have the option to request credit line increases. In some cases, small line increases don’t even require a credit pull – so you can avoid an inquiry, and get your available credit increased. Why would you do this? Because the ratios noted above work in your favor when you pay down debt, but they are really looking at the % of debt you’re using. So if you have a $1000 credit limit card that is maxed out with a $1000 balance – you could pay it down to $500 to get to a 50% credit utilization ratio, OR, you could request a credit line increase to $2000, which would also get you to that same 50% ratio, without you spending a dime.
This is an affordable way to almost instantly boost credit scores. Keep in mind though, this works best if you already have good to excellent credit, because lenders often require a good credit history to grant increases to your credit lines.
Dispute & Delete
According to CNBC, 34% of Americans have found at least one error on their credit report. Credit bureaus are charged with making corrections and providing accurate data, but they can only work off of the data they receive. We recommend looking at your credit annually to check for mistakes. If there’s anything negative on your credit that doesn’t belong to you, you can dispute it and request the credit bureaus delete it. This can happen for many reasons, but regardless of why there is incorrect info on your report, it’s important to fix it, and once updated, your scores should improve accordingly!