Having a high credit score can make it easier to get loans and mortgages, and may also help you qualify for lower interest rates. But, boosting your scores takes time and effort.
The information in your credit reports typically updates once per month. But, it can take a while for lenders to report that information to the nationwide CRAs.
Pay Your Bills on Time
Whether you’re rebuilding credit after financial difficulties or just starting to establish credit, consistent on-time payments can be one of the fastest ways to improve your score. It’s also the most effective method for repairing any past credit issues that may be negatively impacting your scores.
The most important factor in a credit score is payment history, which includes on-time and late payments reported to the nationwide consumer credit reporting agencies (Experian, TransUnion, and Equifax). If you have missed or delinquent debts, paying them off as soon as possible can greatly improve your score.
Another key factor in a credit score is the amount of debt you have outstanding compared to your total available credit, known as your credit utilization ratio. Lenders and credit scoring models generally prefer to see low utilization rates, especially those below 30%. You can improve your credit utilization by reducing your balances and keeping them as low as possible, and by spreading out your spending across multiple accounts instead of maxing out a single card.
Credit mix accounts for 10% of a credit score and is determined by the type and number of different types of debt you have, such as installment loans and revolving credit like credit cards and lines of credit. You can improve your credit mix by opening new accounts as needed and avoiding impulsive credit applications that won’t help your score.
It can take a while to improve your credit score, but it’s worth it when you want to qualify for the best loan rates. Credit scores typically update once per month, and you can speed up the process by requesting your own credit report from each of the three nationwide CRAs, which you can do for free once per year. You can also work with a lender or credit agency to get what’s called a rapid rescore, which can be helpful when you need to improve your score in order to meet certain financial goals, such as applying for a mortgage. However, it’s important to keep in mind that any changes to your credit scores will likely only remain on your report for a limited time, regardless of the speed at which they’re updated or how long you choose to wait before attempting another application.
Reduce Your Credit Card Balances
The credit utilization ratio, or how much you’re using of your available credit, is one of the most important factors in your credit score. Generally, you want to keep this ratio as low as possible to improve your score and demonstrate good debt management. Credit scoring models typically consider a credit utilization rate of 30% or lower to be in a healthy range.
Fortunately, there are several ways you can reduce your credit card balances to lower your credit utilization rate and boost your scores. One way is to pay off your credit cards in full before the end of each billing cycle. If your income isn’t consistent enough to make this work, you can also try paying smaller amounts throughout the month (often called micropayments) instead of one larger payment each month. If your card issuer reports this information to the credit bureaus, it should help boost your credit scores.
Another way to keep your credit utilization low is to ask for a credit limit increase. Since your utilization is calculated by dividing your outstanding balances by your total credit limits, increasing your available credit automatically lowers your utilization percentage, even if you keep the same spending habits. Finally, you can use multiple credit cards to spread your purchases across accounts and maintain a low credit utilization rate.
You can also try keeping your credit cards open longer. Creditors may view a long record of responsible credit usage as an indicator of your creditworthiness, particularly if you’ve recently been dealing with credit challenges. Closing older accounts, however, could hurt your credit.
Finally, if you’re looking to re-establish your credit, it’s a good idea to only apply for new credit when needed. Too many inquiries in a short period of time can hurt your credit scores. If you need a loan, plan ahead and shop for rates within a focused timeframe.
Don’t Apply for New Credit
Your credit score is a reflection of how well you manage borrowed money, and lenders use it to help determine the risk of lending you funds. A higher credit score can open the door to more favorable loan terms and lower interest rates, helping you achieve your financial goals more quickly and easily. However, improving your credit scores takes time and patience. Fortunately, there are some straightforward strategies you can employ to speed up the process.
For example, while opening a new credit card may cause a temporary dip in your credit scores, making consistent on-time payments and keeping your balances low will positively impact your credit scores over time. Additionally, if you shop for loans, be sure to apply for them only when you are confident you will qualify and to space out applications. Each application for a new account triggers a hard inquiry on your credit report, and multiple inquiries can send a message to lenders that you are seeking too much credit and may be unable to pay back what you borrow.
New accounts can also reduce your average account age and affect your credit mix (the types of credits you have, such as revolving and installment). While these factors are generally minor, they can impact your scores slightly. It is also worth noting that your credit reports typically update once per month, and you can see changes in your scores almost instantly if you have made a change to your payment history or if you check your credit reports for errors.
If you want to shop for a loan, NerdWallet advises using the two-week VantageScore scoring window when applying for credit to ensure each lender’s inquiries are treated as a single inquiry and to minimize damage to your scores. Also, consider asking your current card issuer to increase your credit limit if you have been responsible with the account for a while. This could also help lower your utilization rate, which is a significant factor in your credit score.
In general, it takes consistency and patience to improve your credit scores, but with patience you can see positive changes in as little as 30 to 45 days. In addition to the above tips, be sure to review your credit reports regularly for inaccurate information that you can dispute with the CRAs.
Avoid Excessive Inquiries
A high credit score can make it easier to get a loan, lower your insurance premiums and even rent an apartment. However, it can take time to raise a credit score. In addition, there are several factors that can impact your scores, including payment history, amounts owed, credit utilization ratio and new credit.
While some people may be hesitant to check their own credit reports for fear of a negative impact, pulling your own report doesn’t cause any change in your credit. If you find an error that needs to be corrected, you can file a dispute with the relevant credit bureaus. A correction can have a positive impact on your credit score and help you correct inaccurate information that’s dragging down your scores.
When you apply for a loan or credit card, lenders review your credit report to determine whether or not you’re a good candidate for the loan. This process is called a hard inquiry and can have a temporary impact on your credit scores. Generally, one hard inquiry can drop your score by less than five points and many people’s scores recover within a few months.
Another way to reduce the impact of inquiries is by spreading out your applications. For example, if you’re shopping for a mortgage loan or auto loan, you can minimize the effect by applying to different lenders within a 14-day period. Some credit scoring models like FICO and VantageScore will treat multiple inquiries made by the same lender as a single hard inquiry for scoring purposes.
Finally, you should avoid submitting excessive inquiries to other sources for any reason. Lenders typically view multiple hard credit inquiries as a sign of risk and it may suggest you’re trying to borrow more than you can reasonably pay back. Also, if you’re a victim of identity theft, unrecognized hard inquiries can be a warning sign of fraud and can lead to false reports on your credit report. It’s important to be vigilant and review your credit reports regularly.
