Improve My Credit Score

How Can I Improve My Credit Score?

Whether you’re just being conscientious or you have some rebuilding to do, know that it is possible to improve your credit score.

Your credit score is something that is going to follow you everywhere from the minute your credit journey begins. It is a three-digit number that is calculated using a variety of factors about your financial life, and it is a quick way for lenders to see if they’re willing to take a chance on you or not. Your credit score also helps them to determine things like the terms of your loan or credit card, your credit limit, your interest rate, and more.

Improving your credit score is something that is going to take time. It can take several years to raise your score to a level where you want it to be. Even though this is a lengthy process, it is absolutely worth it to help better your financial health moving forward.

There are a lot of tips and tools out there purporting to help raise your score. In this article, we’re going to explore how your credit score is calculated, which of those tips are worth your time, and exactly how much time it might take to get your score back where you want it.

How Are Credit Scores Calculated?

Improve My Credit Score

When you’re not very informed about your credit history or how credit scores work, it can seem completely arbitrary, which makes having a less-than-stellar score even more frustrating. One thing that may shock you right off the bat is that you probably have a ton of credit scores floating around out there that you don’t know about. The reason for this is that there are multiple types of credit scores that lenders can use to evaluate an applicant’s credit worthiness. Each of the three major credit bureaus (TransUnion, Equifax, and Experian) can have different information on your credit profile since they collect credit information without sharing among themselves. The primary credit scoring models used by lenders are FICO and VantageScore, with the former being more widely used. There are also a number of variations to the two scoring models. With multiple credit bureaus and multiple scoring models, you will have a number of different credit scores.

Most models do tend to look at the same factors, but there are slight variations in their algorithms that can vary your score. The heaviest weighted factor is your payment history, which is going to show them how often you made your payments, if you did so on time, or if you just didn’t pay altogether. The length of your credit history is also examined, which will take into account how long you’ve had your oldest credit account open as well as the average length you have had all of your accounts open; this is a much smaller portion of your score.

Credit utilization is another one of these factors, and it is in second place in terms of how much it can impact your score. Credit utilization can be a little bit confusing, but it basically looks at all of the credit that is available to you and how much of it you are regularly using. We understand it may seem silly to have credit and be limited on how much you can use it. However, this helps lenders understand what your outstanding balances are and how responsibly you use your credit each month. Keeping credit utilization low is going to help your score.

The last two factors are not as important as the others, with each of them accounting for just 10% of your score. These are your credit mix (which is how many different types of credit you have) and the number of recent hard inquiries, which is when a bank or lender looks at your credit profile when you apply for a new line of credit. Banks think it is a little bit of a red flag to open multiple credit accounts too closely together. They look at how many new lines of credit you’re opening to make sure that you’re not burdening yourself with debt.

What Can I Do If My Score Is Low?

Improve My Credit Score

If you’re dealing with a credit score that is below your goals right now, you’re keenly aware of just how frustrating and limiting it can be. The important thing to keep in mind is that bad credit isn’t the end of the world, and now that you’re aware of ways to fix it, you can get on the right financial track to do that.

Experts all across the board will tell you that the single most important factor to help your credit score is to make sure that you’re making all of your payments on time. Establishing a positive payment history is important whether you’re building or rebuilding your credit. It is especially important to know if you have any accounts in collections. Those collections are going to drag your score down, so making sure that you make all of your payments is going to help minimize the damage that does to your credit. This doesn’t apply just to your loans and credit cards, either. Making sure you get all of your bills paid on time and in their full amounts is going to show that you can afford your lifestyle, which is what creditors want to see.

If you do currently have accounts in collections, make sure that you try to get those resolved. That debt is going to drag you down, and it is going to take your credit score down with you. You can call the collection agency, ask who the original creditor was, ask what you owe, and set up a payment plan. If you don’t recognize the creditor, you should dispute the account as soon as possible. Make sure that whenever you are dealing with collections agencies that you explicitly ask them to remove the negative hit on your credit—and get that confirmation in writing.

It is important to be smart not just about what you spend but also what you owe. In order to keep your credit utilization rate low and help avoid massive amounts of accrued interest, you should work on paying down your cards with the highest balances first. To help keep your balances in check, try paying your credit card bill twice a month any time you can afford to do so. This helps keep your credit use low, helps you avoid accidental late payments, and it goes a long way toward improving your payment history.

Another important tip is to monitor your credit reports. Check your score often, keep track of any inquiries made on your credit, and make sure that everything is accurate. Mistakes can happen. If you’re dealing with a low credit score, you don’t want those mistakes to be dragging you down at the same time that you’re trying to get on track. You can dispute anything that seems out of place, and you will be able to see what areas you need improvement by looking at your reports.

Your credit utilization rate, as you read above, is the second-largest factor used to calculate your credit score. Lowering your credit utilization ratio is also going to help you get your score under control. Most financial experts recommend that you try to keep that ratio under 30%. You can do this by making sure that you pay down your statement balances. For example, if you have a credit card that has a limit of $6,000, and you owe $3,000 on it, your credit utilization ratio for that card is 50% — that’s much too high.

Another sneaky way to help lower your credit utilization is to try to increase your credit limits on your cards. For example, if you call up that credit card company and ask if you could raise your limit to $10,000, your credit utilization ratio would drop to 30% with a $3,000 balance. Just be aware that, depending on the creditor, it could result in a hard inquiry on your credit history. The best way to keep credit utilization in check, though, is to make sure you are staying on top of your payments. For those of you with really low scores, try to aim for just 10% credit utilization as you’re working on getting back on track as this is the most ideal range.

If you’re trying to raise your credit score, you should be careful about opening new credit accounts. Multiple hard inquiries on your credit will lower your score if you do not get approved. It can also hurt your score to open several new accounts in a short period of time.

If the situation is getting to the point that you feel it is a little overwhelming, you can also shop around for a debt consolidation plan. This is something that can and will bring your score down when you enroll. We know that sounds antithetical to the point, but it is one of the easiest ways for you to get a handle on your debt quickly. Instead of keeping track of multiple payments to multiple lenders or collection agencies, you could just make one easy payment. Just make sure you understand this option can impact your score and know what you can afford to pay before looking into it.

How Long Does It Take To Fix A Bad Credit Score?

Improve My Credit Score

The bad news about low credit scores is that they take a while to fix. If you have negative items on your credit report that are impacting your score, there is not much you can do beyond paying your bills and waiting it out. Delinquencies can stay on your credit report for up to seven years, car repossessions stay for up to seven years, and inquiries can stay on your report for up to two years. You can’t do much of anything to make those disappear faster. In the short term, self-reporting and score-boosting tools may also help bring you up a few points.

In the case of delinquencies, you can try to get them removed faster by paying off the debt and getting the collections agency to agree (in writing) to remove it from your report. Most collections agencies will allow you to set up payment plans and may even allow you to pay a lower amount than what you actually owe if you can pay it off all at once. Inquiries that you didn’t authorize can also be disputed. Any mistakes you see on your credit reports can be disputed, and getting those knocked off can bring your score up a couple of points in just a few weeks. Credit reporting agencies have to investigate disputes within 30 days of them being filed.

Overall, the amount of time it is going to take for you to see the improvement you’re looking for is going to depend on how many negative items are on your report and, just as importantly, how many positive ones you can start putting on there by taking the right steps. You could see a noticeable improvement in just a few months once you start getting a handle on things, but you should expect it to take a year or two to raise your score significantly.

Don’t let the amount of time it’ll take to fix your credit discourage you. Working on this now is going to save you a lot of money in the form of interest payments and a lot of hassle later on. Low credit scores can create a barrier between you and financing a car, opening utilities at your home, purchasing a home, and even renting an apartment. Regardless of what your score is, keeping a close eye on it and being smart with your money will help bring it up and put you at ease.

Patrick Beckman

Patrick Beckman is the Contributing Finance Editor for RAVE Reviews. Leveraging his educational training in engineering, Patrick has developed his own consumer finance strategies for household saving and credit card optimization. A centerpiece of his approach is his Travel-for-Free philosophy: Decide where you want to travel and what you want to do, and then reverse-engineer your credit card sign-ups and bonuses in order to travel to and stay in your destination of choice for free.