A good credit score can unlock a tremendous amount of financial opportunity.
For instance, you can not only gain access to more credit but also cheaper credit. You’ll have an easier time being approved for leases. You’ll receive better rates on your insurance premiums. The list goes on.
Unfortunately, many people deal with the struggle of how to increase credit score ranges. If you’re one of them, you’ve come to the right place. Prepare to dive into everything you need to know about how to increase your credit score.
How credit scores are calculated
The two most popular credit scoring models are FICO and VantageScore. While their models differ and they have several versions of each, the breakdown doesn’t vary much.
When you think about your score, know that you’re never going to be able to increase your credit score to be the same for all models.
On top of that, lenders will use their own models of these scores based on the product they’re selling. That’s why we have multiple credit scores.
Don’t worry about how to increase credit score factors so much that you get a “perfect” score. You simply need to know how to raise your credit score into a good range.
The most influential credit score factors
Here are the factors that will play for or against you on this, as described by MyFico:
- Payment history.
- Amounts owed.
- Length of credit history.
- Credit mix.
- New credit.
While there is a lot you can do to improve credit score ranges, you can primarily focus on two factors: payment history and amounts owed.
1. Payment history
Payment history is currently worth 35 percent of your score. Remember, any payment later than 30 days or more could count against you. On the flip side, if you’ve never make a late payment, you don’t have to worry about this.
2. Amounts owed
Amounts owed comes in second at 30 percent of your score. This is also known as credit utilization or credit utilization ratio. Put simply, this is the ratio of how much you owe on revolving credit (i.e. credit cards) compared to the credit limits you have.
The ideal credit utilization ratio is 30 percent or less. You can find your percentage by adding all of your limits and balances except for installment loans. If the balances equal more than 30 percent of your limits, then you need to pay them down.
Together, payment history and amounts owed make up more than half of your score. If you were to focus mainly on these two factors, then you’d already be on your way.
3. Length of credit history, credit mix, and credit history
As for the other players, length of credit history comes in at a respectable 15 percent. This is good news because all you have to do to achieve this is keep your accounts open. Credit mix and new credit close the loop at 10 percent each.
Many people focus so much on every aspect of their score they fear any financial misstep could irrevocably damage it. Don’t do that to yourself. Working to accomplish perfection in every area could burn you out, which will be far worse in the end.
How to increase credit score in 10 easy moves
Now for the fun part. Let’s talk about ways to improve credit score ranges. Remember, you don’t need a perfect credit score, you just want to be in the highest possible range.
1. Avoid late payments
Payment history makes up 35 percent of your credit score. If you never make a late payment, then that’s 35 percent of your score in good standing. It’s almost too easy to get this one right.
Too easy, that is unless you have trouble remembering or you can’t afford your payments. If you can’t remember to make your payments, sign up for automatic payments. If you can’t afford your payments, there are a few things you can do.
Call your creditor and ask them to move the due date. Having the date hit at a different time in the month might give you some breathing room.
However, if you’re walking a tightrope on your budget every month and seriously worry about being able to make your payments, that’s another conversation.
If your credit is good enough, consider consolidating your debt to lower your payments and/or interest rates. You could also ask your lender and to lower your rate – something that will effectively lower your payments, too.
And if you’re still having trouble, talk to your lender to see if you can refinance or work out a new payment plan. You can also see if you qualify for a hardship program. Not all lenders offer these options, but you lose nothing by asking.
Not all lenders offer these options, but you lose nothing by asking.
2. Pay down revolving debt first
Remember “amounts owed” or credit utilization? This factor focuses on revolving debt, such as credit cards. If you want to do well here, keep those credit card balances as low as possible (zero if you can).
Since you’ll need to keep your credit utilization ratio at 30 percent or below to do well in this area, focus on paying down revolving debt before installment loans. In the end, revolving debt almost always has a much higher interest rate. Eliminating it first is good for your credit score and your wallet.
3. Increase your revolving credit limits
If debt paydown is going to take awhile, use this trick to boost your credit score in the meantime: increase your credit limits.
To do this, call your credit card issuer and ask them if you can apply for a higher credit limit. If you get approved, then your credit utilization ratio will automatically improve – as long as you don’t use your increased limit.
Increase your credit limits and start working to decrease your balances. As a result, your credit utilization ratio will improve.
4. Get a credit card
There’s a lot of fear around credit cards, and for good reason. Credit card debt can be costly and take years to get out of – especially if you only make the minimum payments.
If you want to see just how long it can take to pay off credit card debt with only minimum payments, this chart posted in Business Insider breaks it all down:
That said, avoiding credit cards (or debt in general) is going to hurt your efforts to improve your credit score. Credit scores exist so lenders can estimate your likelihood of repaying money lent to you.
But if there’s no credit history to see, then they can’t make that estimation. That means they’re not as likely to lend money to you.
Go ahead and get a credit card if you don’t have one. Just don’t carry a balance on it month to month. Use it and pay it off every month, and you’ll be able to build credit without going into debt.
And if you can’t get approved for a traditional credit card, try a secured credit card. This is a credit card you put a down payment on, which makes it easier to be approved for. It’s also a great tool for establishing credit.
5. Use student loans to your advantage
Just like a credit card can help you build credit, loans can, too.
Remember that credit mix factor? It’s only 10 percent of your score, but this is where having student loans helps. If you have a credit card and a student loan, then you’re showing that you have a credit mix and can handle multiple types of credit.
Paying off your student loans – and auto loans and mortgages – also gives you an opportunity to build up a positive payment history and length of history with your servicers. Stay current on your payments and your credit score will benefit from it.
If you have trouble making your student loan payments, don’t let late payments happen before you take action. Anyone seriously struggling with federal student loans can apply for income-driven repayment plans to decrease their monthly payments.
You can also refinance your private student loans or ask your lender if they have a way to work with you when you’re struggling to make ends meet.
6. Pay rent via credit card
Speaking of payment history, the more you can have positive payment history reported on your score, the better. Therefore, if you’re a renter, use that money leaving your pocket every month to help your score. Ask your landlord if you can pay via credit card.
Just remember to pay the balance in full every month before the end of the billing period. Do not let your rent cost you money in credit card interest. Your best bet would be to pay your rent on the credit card and then immediately make a payment on your credit card for that amount.
Bonus: if your landlord lets you pay via credit card, you can use that to build credit and earn rewards if you have a cash back or travel rewards card.
If your landlord won’t accept credit cards, ask if they are signed up with RentalKharma. This credit-building tool takes into account all of your rent payments so you can improve your credit score with on-time payments.Sign Up With RentalKharma Today
7. Review your credit report and dispute errors
Every year you’re entitled to one free credit report from each of the three credit reporting bureaus. You can get these reports at AnnualCreditReport.com.
Don’t forfeit your opportunity to check your credit report. Errors on reports, after all, are common. According to The Washington Post, since 2012, “There have been more than 158,000 complaints against the three agencies, 80 percent of which were about incorrect information on credit reports.”
Credit reporting errors can be quite costly to your credit score. Review your credit reports every year and immediately dispute anything that’s not right.
8. Rate shop wisely
There are times when you’re going to need a new loan and will want to get it at the lowest interest rate possible. But a lot of people worry about what rate shopping will do to their credit score.
If you rate shop wisely, you can ensure that it doesn’t damage your credit score. The best way to do this is to keep your loan applications to the same type of loan with the same amount during a 14-day time frame.
That way the credit reporting bureaus will fully understand that you are loan shopping and batch the inquiries so they don’t damage your score.
9. Pay off credit cards
You can pay off credit card debt more efficiently and build more credit if you consolidate it onto a balance transfer credit card or an unsecured loan. Then keep the card open to establish a longer credit history with it.
A balance transfer credit card typically comes with a zero percent interest rate for a period of six to 24 months, depending on your credit. That gives you a certain amount of time to pay on your balance interest-free.
An unsecured loan can also be a good option if you get an interest rate that’s much lower than the rate on your current card. It also helps because it has a fixed payoff date.
With either of these options, the card or loan will pay off your existing credit card or cards. If you keep the old ones open, your credit utilization and length of credit history will benefit.
10. Take care of any debt in collections
Finally, if you have debt that’s gone off to collections, don’t think that means you don’t have to pay it. Accounts in collections are highly damaging to your credit score. According to a white paper by VantageScore, accounts in collections can stay on your credit report for seven years.
Take care of these accounts sooner rather than later. Call the collectors and either get on a payment plan or offer to settle the debt.
Then, when it’s paid off, ask them to send a letter saying to the credit reporting bureaus. Be diligent about this so you can get these marks off your report ASAP.
Focus on what’s good for your money
In the end, if you simply follow best practices for what’s good for your finances, then your credit score should improve as a result.
Use credit, but pay it off before the interest builds. Pay all of your bills on time. And keep your long-standing relationships with certain banks and lenders strong by leaving accounts open. You’ll soon see an uptick in your score
The rest of these tips are great if you need a quick credit score boost, but they shouldn’t feel like too much. Do what’s good for you and you’ll do what’s good for your score.
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|Lender||Rates (APR)||Loan Amount|
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2 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
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