People with a poor credit history are usually required to pay higher interest rates on future loans. What is the surest way to improve your credit score in the shortest possible time? Well, there isn’t any magic wand, and no single strategy can make it happen. You can improve your score in as little as three months by applying several strategies together. But there is a condition – your credit score should not have any serious black marks like foreclosure or bankruptcy.
Follow these tips to improve your credit score quickly.
Check Your Credit Reports
The first step is to figure out where you stand right now. Though you are entitled to get a free credit report once a year, it’s worth shelling out a few bucks to see your credit scores. Spend some money to get your TransUnion and Equifax scores at myfico.com. Experian has stopped selling its FICO score to retail consumers, but it still sells your scores to banks and lenders.
Check them for errors, make sure the data are accurate. Many a times people notice incorrectly listed late payments. If you find any mistakes, dispute them with the reporting agency and the credit bureau.
Pay Your Bills on Time
If you miss your monthly payments, that may hit your credit score in a big way. People who are unorganized need to set their bills up for automatic withdrawal from their bank accounts. Lenders immediately report delinquencies to the credit bureaus when you are 30 days past due, and the blemish remains on your credit reports for at least seven years.
Nowadays many banks have taken the responsibility to remind you through text message or email when your payments are due. In case you have already missed some payment in the past, catch up with them and never make that mistake again.
Pay Off The Credit Card Balances First
Revolving debts like credit cards have a greater effect on your credit score than installment loans such as mortgages. Paying off credit card debts ahead of the due date can add up to 100 points to your low credit score.
[blockQuote position=”right”]Paying off credit card debts ahead of the due date can add up to 100 points to your low credit score[/blockQuote]
Apply For A Small Installment Loan
Confused? Well, the reality is that you can improve your score at the fastest pace by letting the credit bureaus know that you are responsible with revolving as well as installment both types of debts. So, consider applying for a small installment loan if you don’t already have one. Just make sure that you can easily pay back that sum in future. And yes, make sure that the installment loan you raise is reported to all the three credit bureaus.
Don’t Cancel Unused Credit Cards
Your old credit cards have a long history, which slowly increases your credit score. When the credit score increases, you can get new credit cards with comparatively lower interest rates. That doesn’t mean you should stop using your old credit cards or cancel them.
Your newer credit cards will have a lower interest rate, but they also have a small credit history that lowers your score. When you stop using the older ones, the credit card issuers may either decide to close the account or stop reporting them to credit bureaus. In case they stop reporting, the account will still appear, but it won’t have as much weight on your score as your active accounts.
So, you need to dust off the older ones occasionally.
Never Ever Max Out Your Credit Cards
The best rule is to maintain the credit card balances below 30 percent of the credit limit. Try not to spend more than $3,000 on a $10,000 line. Whenever you need to spend more, simply take out other credit cards to reduce the loan on any single card.
If credit card issuers report a hefty balance on any of the cards, it will affect your score. It’s always good to have three credit cards with less than 30 percent in balances, than to have just one card that you max out every month.
Do The Loan Shopping Within a Limited Time
Too many credit inquiries (for a vehicle, home loan, etc.) often pull your credit score down. If you shop for loans within a limited time span, credit bureaus won’t treat it unfavorably. So do it within just two weeks period.
Put the above tips to work, and I’m damn sure your credit score will improve dramatically in just three months.
Did you ever have a bad credit score? What did you do to fix that?