Your credit Score is the most important aspect of your financial life. Many people struggle with poor or average credit scores, but contrary to what most people believe, it’s actually a lot easier than you might think to improve your credit score. You just need to get the right information, and be prepared to follow through on that information.
Applying the following 12 steps to can put you in prime position to raise your score by over 100 points within a year and put you on the path to earning more competitive interest rates.
Proven strategies to skyrocket your credit score within 6 to 12 months:
1. Set up an automatic payment system.
Payment history is the single most important factor in calculating your score and accounts for 35%. This is why recent late payments (reported in your file within the last 12 – 18 months) can have a devastating effect on your credit score, notwithstanding the fact that you have been paying your bills perfectly on time for decades and have excellent credit. For example, if you have a credit score of 780, a single late payment could cost you as much as 100 points.
Lenders have the right to report an account late the 1st day the bill is past due, but they typically don’t report it to the credit reporting agency until it is 30 days past due. So, if you’re only a few days late on your credit card payment, as long as it is less than 30 days late, the late payment may not go on your credit report if you make the payment before the 30-day mark. So if your bill is due on the 5th of the month but you are unable to pay until the 29th of the same month, you should be okay.
But the easiest way to avoid late payments is to setup an automatic payment system so that you never miss a payment. Lots of utility providers (like gas and electricity providers) give you a discount for paying by direct debit.
2. Get credit cards that will build your credit.
In order to build up your credit score, you must have credit. There’s no way around that. In fact, having no credit cards will seriously damage your credit score because you have not proved to potential lenders that you have the ability to manage your finances responsibly.
You need at least 2 – 3 credit cards in excellent standing. Before you sign up to a credit card offer however, it is important to ensure that you only use credit cards that report not just your current and highest balance, but your total available credit to the credit reporting agencies. Not all banks do that.
According to Badcredit.org, here are 13 of the best secured credit cards that can help you build your credit.
3. Keep low balances.
30% of your credit score is based on credit card balances vs available credit. The lower the balances on your credit cards, the more points you will gain. Never use more than 25-30% of the available credit you have on any revolving credit lines at any time during the month.
You can lose as much as 75 points for having maxed out revolving credit accounts, even if you pay the full balance at the end of the month.
4. Use your credit cards.
You won’t be doing much to improve your credit score if you’re not actually using your credit card. The best way to use your credit card is to make low, every day purchases on them such as groceries rather than paying in cash, and then pay the balance off in full every month.
You need to give lenders the assurance that you know exactly how to manage your finances, and the only way to do this is by keeping a balance on your card, and paying off that balance in full when it is due.
5. Get a healthy mix of credit accounts.
10% of your credit score is based on type and mixture of credit accounts. This means a healthy mix of revolving accounts, installment accounts and open accounts. You need to have at least one of each of these accounts to get the best results. The types of lending institutions you borrow from can also be a factor. Traditional banks (Citibank, Chase, Capital One) are viewed as more favorable than certain types of sub-prime loan companies that market to people with challenged credit.
6. Do not close older credit accounts.
It might seem sensible to close your oldest credit accounts if you are not using them, but if you do so, your credit score could drop by a significant margin. As much as 15% of your credit score is the length of your credit history. According to Credit Karma, closing your older accounts will reduce the length of your credit history, which may harm your credit score.
The longer you can demonstrate that you’ve been responsible user of credit, the higher your credit scores. Your oldest cards could be worth 30, 40 points or more. If there’s no risk of identity theft to the account, you might want to leave those old accounts open.
7. Track your FICO score every single month.
It is crucial to review your credit score on a regular basis so that you can keep on top of any new developments on your credit report. This also allows you to act in time when you discover that there is a problem. One of the most effective ways to track your credit score is to use a credit monitoring service so that you know what happens during every single month.
As you look for a credit monitoring service, insist on finding one that gets you FICO scores and not FAKO scores since these could be different from your FICO score. This is because most banks and other lending institutions will often use the FICO score, rather than FAKO scores. FAKO has been known to give people a false sense of security because it is often higher than the FICO score. You can check your FICO credit scores for free every month on credit.com.
8. Keep your credit score fresh.
You can keep your credit score fresh by getting a secured loan and a savings account in the same amount every few months. According to Experian, a secured loan or credit card can help you build credit. Begin by putting $350 in a savings account and then borrow $250. The savings account pays for the loan and if you set it up on direct debit then you can be assured that it will never be late. Be sure to include the interest, and before you take out the loan, make sure that the financing company is one that sends a report to the credit bureaus.
If you want to get a secured loan, I won’t go as high as $1000 or more. The actual amount that you borrow doesn’t matter. What is important is to see regular payments made to your credit report on time. You can do this with as little as $200 or $250. This will allow you to raise your score with payments, but not lose much in interest money.
9. Make your payments on time.
It is possible for one late payment to really wreck your credit score even though you might have been paying your bills on time for years.
Your payment history is the most important component of your credit score, which is why it accounts for 35% of your score. The longer you have a record of making timely payments, the more trustworthy you become to credit bureaus, and the higher your credit score will go. If you were recently late on a payment but have a history of timely payments, contact the lender and humbly request that they remove the item from your credit report.
10. Try to restrict applications for credit to within 30 days.
Every time you make an application for credit, it is registered as a hard enquiry. If you apply for several credit cards within a short period of time, multiple inquiries will appear on your report, and this equates with higher risk. A hard inquiry can take more than 10 points off your credit score depending upon the type of hard inquiry and the time period in which the inquiry was done.
Under a law enacted in 2003, all credit pulls within a 30-day period count as one pull. However, these do not apply to credit cards. Loans that are affected involve rate-shopping for mortgage, auto and student loans. If you’re shopping for a mortgage, vehicle, or other type of loan you may want to compare rates and terms with different lenders. It is expected that a consumer will comparison shop for the best interest rate on a new house, new car, or a re-finance. FICO Scores ignore inquiries like these that are made in the 30 days prior to scoring.
This is designed to allow people to shop around for the best deals without being penalized for doing so. This is why it is best to restrict your shopping around for these types of credit within a 30-day period. On the other hand, if you’re applying for credit cards and getting constantly declined, this will be damaging your credit score. Most high credit scorers have about two hard inquiries per year. According to myFICO, anything over six inquiries within a year can be viewed as excessive by lenders.
11. Send your rental payment information to the credit bureaus.
Paying your rent on a regular basis demonstrates strong financial discipline and is a great way to boost your credit score. Check with your landlord to see if they already submit rent payments to the credit bureaus such as RentBureau. If not, you can use one of the online services available to do so. These include:
- PayYourRent. This tool provides the ability to pay your rent and simultaneously build your credit history with all three credit bureaus.
- RentalKharma allows you to submit up to 24 months of past rent payments to your credit report and build your credit history at the same time. They report to all three credit bureaus.
- RentTrack acts as a bridge between yourself and your landlord. After you make payment to them, they’ll pay your rent and report consistent payments to all three major credit bureaus.
12. Remove 7-year old negative items from your credit report.
According the Fair Credit Reporting Act, any negative items that are at least seven years old must be deleted from your report. Note however that bankruptcies will remain on your credit report for ten years.
If after reviewing your report you find any negative items that are more than 7 years old, send a request to the credit reporting agency that the information be deleted from your account.