How To Improve Credit Score In Just a Few Months

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Tips to Improve Credit Score Fast

What is a Credit Score?

A credit score is a number that represents the creditworthiness of a person. Any establishment which lends finance will run a check and evaluate a person’s credit score to determine the likelihood of that person repaying the debt.

Credit Score Companies

The three national credit bureaus are Equifax, Experian, and TransUnion.

FICO (previously Fair, Isaac, and Company) is the leading credit scoring company in the U.S. most banks and lenders use their model, and all three national credit bureaus obtain their information.

How to Get Your Credit Score

Every U.S resident is entitled to a free credit report from each agency every year under the FACT Act (Fair and Accurate Credit Transactions Act). Otherwise, you can sign up and pay a small fee to obtain your report.

What Information is It Made of?

The various factors within a person’s credit score measure the risk of default and ultimately looks at their financial history. Each credit bureau has its own formula for assessment, but the primary considerations are:

Payment history – this considers bankruptcy, foreclosures, late payments, liens, judgments, and settlements. Anyone with any of these issues will have a reduced credit score.

Debt burden – essentially how much debt a person has (numbers of debt accounts, balances and amount owed), and debt-limit ratio.

Length of credit – having a longer credit history goes in favor of the borrower. Considerations include the age of the oldest account and the average age of accounts.

Types of credit – if a borrower has a history of repaying different debts, this will boost their credit score. For example, mortgages, credit cards (or revolving credit because there is no set end date), consumer finance (or alternative financial service-AFS, primarily for people on low incomes), and installment credit (for example, loans which have a fixed repayment and term).

Recent credit searches – doing too many credit searches in a short period are damaging to a credit score.

What is a Good Credit Score?

The average credit score in the U.S (2019) was 695. The FICO model ranges from 300 to 850, with a higher score being better.

  • Excellent credit score – 720+
  • Average credit score – 660-719
  • Poor credit score – 620-659
  • Bad credit score – <620

Around 14% of Americans do not have a credit score and are credit invisible. Anyone with no score or a low score will have difficulty getting a credit facility.

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How to Improve Your Credit Score in a Few Months

Sign Up for a Credit Card

Not many people know that to get good credit, you must have credit or debt. Young adults may find it challenging to obtain their first loan or credit card when they have no previous record of borrowing or no credit risk score, and ultimately no proof that they are a responsible borrower. Evidencing that you can pay a debt every month builds up a good credit rating.

Keep Credit Cards Active

If you don’t use your credit card for six months or more, your provider is likely to inactivate your account. This will show on your credit score and go against you as creditors want to see activity. Instead, use your credit card once every few months; you can always make a full balance payment if you don’t want the debt. If you have any inactive cards, contact your lender to get them activated so that your credit score will improve quickly.

Reduce Revolving Debt

The most extensive section of your credit score is made up of your revolving and installment debt, i.e., credit cards and loans, at around 30%, depending on the agency. Reducing your credit card balance is the best way to increase your credit score within 30 days.

Increase Your Credit Card Limits

The other way to decrease your revolving balance is to increase your credit card limits. Only do this by contacting your provider and asking for a soft pull of your records within the lender’s database. If you do a full credit check, it is likely to appear on your record under recent credit searches.

Get Late Payments Removed from Your Credit Score

Late payments add up to 110 points on your credit score but, by contrast, can reduce it by up to 135 if removed from your history. If you have a higher credit score of 780, a late payment each year could have minimal effect. As a one-off goodwill gesture, your original credit may strike off your late payment. If they refuse, you can also negotiate to remove the late payment leveraging regular future payments.

Get Collection Accounts Removed from Your Credit Score

As above, you can negotiate directly with collectors to get any collection accounts removed from your credit history. Do not pay the collection debt; instead, write direct and negotiate a pay for removal deal.

Key Takeaways

  • Obtain your free credit score and check your data is correct.
  • Amend any incorrect information on your credit score by contacting the credit bureau. 
  • Get some form of credit product to start your credit history if you have none.
  • Ensure your debt is paid on time.
  • Build up different types of credit.
  • Keep unused credit cards open and active.
  • Keep credit card balances as low as possible – no more than 30% balance.
  • Get late payment markers removed from your history.
  • Get collection accounts removed from your account.

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