How do you improve your credit score if it’s under 700? Building your credit will take time and discipline, especially if you’re trying to rebuild bad credit.
Maybe you’re looking for a quick solution to increase your credit ratings. There’s no single strategy that will suddenly enhance your credit scores in a matter of days.
However, there are some steps you can take to help you improve your credit score in a short period of time.
It all depends on your personal condition because everybody’s situation is different. Also, credit scores are complex and they consist of several inter-related factors.
The bottom line is if you start cultivating healthy habits, you can build your credit over time without using credit repair agencies.
Those agencies may promise to raise your credit scores instantly. However, there’s no secret they have that will help boost your credit scores overnight.
Nothing can improve your credit score more quickly or effectively than paying your bills on time and using your credit cards sensibly.
Your credit score will fluctuate as you go through life. The extent to which it fluctuates is determined by your ability to repay debts on time, particularly credit cards and installment loans.
When you use credit more frequently, whether it’s for more credit cards, a student loan, a car loan, or a mortgage, your credit score changes to reflect how you deal with handling the debts.
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What’s a credit score?
A credit score is a numerical summary of your credit history that lenders use to estimate the chances of you repaying any loans you take out.
Your credit score can range from 300 (poor) to 850 (excellent). If you have a high credit score, that indicates that you have a persistent history of good credit.
This includes:
- making on-time payments
- limited credit utilization
- a long credit history.
If you have a history of late payments or overuse of credit, you’ll have low credit ratings and will be considered a high-risk consumer. Although there are no definite cutoffs for good or bad scores, there are standards and guidelines for both.
If your credit score is above 720 that’s considered ideal by most lenders. Whereas if your score is below 630, that’s problematic for most lenders.
You should be conscious of how improving your credit score is important in improving your overall financial outlook.
90% of businesses in the United States use the FICO credit score to evaluate how much credit to extend to you as a customer and what interest rate to charge you.
To calculate your credit score, FICO considers five important factors.
5 factors that affect your credit scores
Here are the five main factors that go into determining your credit scores:
Your payment history (35% of your credit score)
Your payment history plays a major role in determining your credit scores. Do you usually pay your bills on time? Do you pay the entire sum, the bare minimum, or anything in between?
Amounts you owe (30% of your credit score)
This is known as your Credit Usage or Credit Utilization and measures how much of your available credit you tap into at any given time. How much of your available credit do you use?
If you go over your credit limit, you will be considered a high-risk person and may be fined. Alternatively, you are considered a safe borrower and receive a good rating if you spend less than 30% of your available credit.
The length of your credit history (15% of your credit score)
The longer you have an account, the better it reflects on your credit score. This takes into account the ages of your oldest and newest credit card accounts, as well as the average age of all of them.
The older your credit, the better, as it demonstrates to lenders that you have experience with credit management.
Your credit mix (10% of your credit score)
Your credit mix has a small impact on your credit score. It looks at the types of credit you borrow. Lenders want to see that you can manage revolving accounts such as credit cards and installment accounts such as school loans, mortgages, car loans, and personal loans.
FICO prefers a credit mix that includes credit cards, mortgages, and vehicle loans, as long as you can afford them. Do not take out another loan in the hopes of improving your credit score.
New credit or recent credit (10% of your credit score)
Your recent credit keeps track of the applications you submit for new credit cards and personal loans. It’s okay if you open a new account now and again.
However, if you apply for several accounts in a short period of time, it’s not good and it will reflect in your credit score negatively.
It’s preferable if there aren’t too many of them. The fewer they are, the better.
It’s fine to create a new account now and then, but if you apply for numerous accounts in a short period of time, you’re a risk, and your score will reflect that.
Time frames for negative information that lowers your credit score
The following are some time frames for unfavorable information that lowers your credit score.
- Your credit application inquiries remain on your credit report for two years.
- A delinquent account remains on your report for seven years.
- Public record items such as property liens are on your report for seven years.
- Car repossession stays on your report for seven years.
- Chapter 7 bankruptcy is on your report for 10 years.
- Chapter 13 bankruptcy remains for seven years.
Tips that can help you raise your credit scores
There are important steps that you have to follow to improve your credit scores. Building credit takes time but if you’re starting with bad credit, no amount of drastic measures are likely to have the immediate effect you’re looking for.
For starters, you have to start creating some consistent habits to help improve your credit scores.
Here are some tips for improving your credit score over time.
Review your credit reports regularly
It’s important to keep an eye on your credit. Therefore, you should start by checking your credit report.
Equifax, Experian, and TransUnion are the three major national credit agencies where you may get a copy of your credit report. You are entitled to one free credit report a year from each of the three reporting agencies.
Requesting for one should have no impact on your credit score. You can do this once a year for free by visiting the official AnnualCreditReport.com website.
When you receive the report, review them closely. Look over each report to determine if there are any mistakes or inaccuracies. Also, find out what’s helping or hindering your overall credit score.
If you detect any mistakes or inaccuracies, you should file a dispute. This is the closest you can get to a quick credit fix.
If your dispute is approved by the credit bureaus, the error can be corrected within 30 days. This should help raise your credit scores.
______Set up autopay so you don’t miss payments
One of the most essential criteria in determining your credit ratings is your payment history. If you have a long track record of on-time payments, it will help you attain good credit scores.
To do so, make sure you don’t go more than 29 days without making a loan or credit card payment. If your payments are more than 30 days late, you might be reported to the credit bureaus, and this will lower your credit score.
It may be in your interest to set up automatic payments for the minimal amount required. This will help you to avoid skipping a payment.
If you’re experiencing problems paying a debt, contact your credit card company as soon as possible to discuss hardship options.
If you don’t want to set up automatic payments, you may want to set up payment reminders. Write down your payment deadlines for each bill in a planner or calendar and set up reminders on your phone.
Consistently paying your bills on time can raise your score within a few months.
Pay more than once in a billing cycle
Rather than making a single large payment at the end of the month, try making smaller installments every two weeks. This could allow you to make a few more payments each year and save money on interest charges.
Furthermore, making additional payments will help you pay down your principal balance faster. This will lower your account balances and credit utilization ratio and improve your credit scores.
Catch up on past-due accounts
If you’re behind on your bills, you should endeavor to bring them current. While a late payment might stay on your credit report for up to seven years, keeping all of your accounts up to date will help you improve your credit scores.
It also prevents additional late payments from being recorded on your credit report, as well as late fees. Talking to a credit counselor and enrolling in a debt management plan (DMP) could be a useful alternative if you’re struggling with credit card debts.
The counselor may be able to negotiate cheaper payments and interest rates with card issuers on your behalf. They’ll also help bring your accounts up to date.
Contact your creditors
If you miss payment deadlines and can’t afford your monthly bills, contact your creditors immediately to set up a payment plan. Late payments and significant outstanding balances can be mitigated by quickly addressing your issue with your creditors.
Negotiate a lower interest rate
A lower interest rate can help you to pay off your balance faster. Allocate more of your payments to your principal balance rather than the interest. This will lower the balance on your account.
A lower balance can mean a lower credit utilization ratio and improvement in your credit score.
Limit your requests for new credit
While you may need to open accounts to enhance your credit score, you should try to keep your credit applications to a minimum. Each application you make can result in a hard inquiry.
Hard inquiries tend to lower your credit scores slightly, and they’ll build up and have a compounding effect. Opening a new account reduces the average age of existing accounts, which can lower your credit scores.
Although inquiries and the average age of your accounts are small score factors, you should nevertheless limit the number of applications you make. An exception is when you’re rate shopping for certain types of loans, such as a car loan or a mortgage.
Rate shopping isn’t considered risky behavior by credit scoring models and is mostly ignored if it occurred within a span of a couple of weeks.
Pay down revolving account balances
Even if you aren’t late on your payments, a high balance on revolving credit card accounts can result in a high credit utilization rate. This will likely lower your credit scores.
You should maintain a low balance on revolving accounts, such as credit cards and lines of credit. Maintaining a low balance relative to your credit limitations can help you improve your credit scores.
Consider consolidating your debts
If you have a lot of outstanding debts, it may be to your advantage to take out a debt consolidation loan from a bank or credit union to pay them off all at once.
When you do this, you’ll only have to worry about one payment. Additionally, if you can secure a reduced interest rate on the loan, you’ll be able to pay off your debt faster.
Your credit utilization ratio will be improved, leading to an improvement in your credit scores.
Be careful paying off “charged off” debts
If a creditor “charged off” your debt, it means they don’t expect any more payments from you. If you make a payment on a charged-off account, it reactivates your debt and your credit score is lowered.
This is usually the case when collection agencies are involved.
How long does it take to rebuild credit?
A noticeable change in your credit score usually takes at least 3-6 months of good credit behavior on your part. It is difficult to make a change any faster.
While it’s hard to put a time limit on your credit repair, it’s reasonable to assume that the less negative information you have on your record, the easier it is to repair your credit score.
Negative reports include maxed-out credit cards, late payments, frequent credit applications, bankruptcy, etc.
____ ____It will take you longer to repair a negative credit score than it will take to establish a good one. When your credit score suffers as a result of your mistakes, you may not be approved for a loan.
However, some lenders will give you loans despite your bad credit score. You’ll discover that borrowing from them might ultimately cost you hundreds or thousands of dollars due to the very high interest rates that they’ll charge you.
If you have a poor credit score, you may have difficulty setting up utilities, renting an apartment, and even finding a job.
If you are late with just one payment on your debt, you will not lose as many points on your score as you would if you’re delinquent for several months and your account has been turned over to a collection agency.
Read also: 6 Hurtful Credit Mistakes To Avoid Now And Boost Your Credit Score