Get a Higher Credit Score Fast

Bad credit can have a major impact on future happiness if you don't correct it, so it's important to know what you can do to get things back on track. You'll need a decent credit score when you apply for a mortgage, a business loan, or even credit cards and store cards. But a low credit score is not the end of the world, as there are many ways to improve your financial standing.

Steps

Understanding Your Credit Profile

1. Understand your credit report and score. Your credit report is a record of your financial past, including any loans, bills, credit cards, or other debts you've had and whether or not you made the proper payments on each account. Your credit score is derived from this information and is a numerical representation of your credit risk. In other words, it shows a potential lender your trustworthiness in repaying your debts. Credit scores range from 300 to 850, with a lower score indicating less creditworthiness and a higher score indicating more.
   • Most financial professionals recommend a credit score of at least 700. Scores at this level or above allow a borrower to get lower interest rates on loans and credit cards than other people with lower credit scores.
   • Your credit score is also affected by a number of other factors, including how much you owe in relation to your available credit, the length of your credit history, the variety of your credit sources (whether or not you have several types of credit, including loans and credit cards), and recent credit inquiries (more requests for credit may lower your score).
2. Go online and get a free copy of your credit report. You are entitled to one free report every year from each of the three main credit report agencies (TransUnion, Experian, and Equifax).
   • Ideally, you should do this regularly, at least once a year. Since the first time is free with every agency you can get a credit report as often as once every four months without paying. . Should you need a further report, be prepared to pay.
   • You may want to get a report from each of the three agencies, at least the first time, as they will not necessarily match. This is usually nothing to worry about and just the result of minor discrepancies in reporting, but it is good to know what information is out there.
   • Remember, your credit report is not the same as your credit score. It is the information that is used to calculate your credit score, but will not include the actual three-digit number you may be curious about. However, you can pay the agencies to provide that if you choose.
3. Check to see if there are any errors on your credit report. Even very small mistakes can make a significant difference if they're not caught. This is one of the easiest ways to turn a low credit score around.
   • Contact any smaller credit and collection agencies on your credit report and ask them to verify the debts they are claiming. If they are not able to show that it was you, at that particular address, who defaulted on the payment, you can ask that they remove the claim from your report. This will improve your credit score immediately.
   • The same applies for companies that merged or closed down — if the information about you cannot be provided, you can request for it to be removed and therefore improve your credit score almost instantaneously.
   • For more information, see Get an Error Off of Your Credit Rating.
4. Clean up any old small debts. An old missed payment that went to a collection agency could be causing you trouble. Take the opportunity to check your history and get everything in order.
   • Make partial or full payments of any remaining standout debts. Even putting some money toward the payment of a debt will make you look better in the eyes of creditors. Collection agencies will be happy to work with you, and will appreciate your efforts.

Managing Your Debt

1. Take a look at your accounts. Before anything else, it's worth making the mental adjustment of understanding what you are really earning and can really afford to spend. Your credit score is meant to reflect how you spend your money, so begin by making sure you are well-organized and realistic in your financial choices.
2. Pay off as much outstanding debt as you responsibly can. Having debt is a burden on you psychologically as well as having a negative impact on your options financially. It's time to get it in control!
   • While you don't want to empty retirement accounts, it is a good idea to lower the amount you owe rather than putting more toward your savings at least until you have your credit score in good shape.
   • Keep a close handle on your spending. Getting into debt usually happens when you spend more than you can afford, so it is important to properly understand your income and make smart choices about what you buy.
   • To achieve these goals, it may be helpful to create a budget. This will help you to save money in other areas of your life so that you can pay down your debt as quickly as possible.
3. Optimize your credit utilization ratio. Maybe you have several credit cards and debt on each card. Not all debt is equal in this case, as cards with high debt to limit ratios are penalized more on your FICO credit score than cards with lower debt to limit ratios.
   • What is a debt to limit ratio? Also called credit utilization, it's a measurement of how much debt you have on your card versus how much you are allowed to spend. A credit card with $900 of debt and a credit limit of $1,000 has a very high debt to limit ratio, one of 90%.
   • Ideal credit utilization rates are under 10%. If you can get your total debt to under 10% of your available credit, you've done very well. This should be your target debt level, even if it might take you a while to get there. In general, keeping your utilization under 30% is healthy.
   • Transfer debt from one card to the next. If you have one card with a high limit and another card with a high debt-load, consider transferring some of the debt over from one card to the other. This might help massage the credit utilization. Keep an eye on whether you would be accepting higher interest rates, and make sure to look at your options carefully.
4. Get a credit limit increase. If your credit score is less than stellar, this is going to be more difficult, but applying for a limit increase will lower your total credit utilization and improve your credit score.
   • Gather any supporting documents that might demonstrate why you should be given a credit increase (a pay increase, for example) and make your case to someone over the phone.
   • Be careful, however, as a limit increase request may cause your credit score to go down by a few points. If the credit card company needs to make a credit score check in order to authorize a limit increase, call the request off!

Maintaining Financial Health

1. Pay bills on time. About 35% of your credit score is determined by your payment history — whether you paid your bills on time. If you have any bills that you haven't yet paid, find a way to pay them off.
   • Your credit score gets dinged each time you have a late payment, and then dinged again each time your payment is 30 days late and each time your payment is 90 days late.
2. Use credit cards regularly and responsibly. You should use your credit card or cards for small purchases and pay off the balance at the end of the month. This shows that you can borrow small amounts of money (what the card provides for convenience when you're at the grocery store) and be relied on to pay it back when you pay your bills at the end of the month.
   • Start using old credit cards again. If you have a credit card that you don't use anymore, the credit issuer may simply decide so stop reporting the account to the credit bureaus. That doesn't sound horrible, until you realize that accounts with a longer history actually improve your overall credit score. So get out your old card, put a small recurring monthly payment on it, or use it every so often to go to the movies. Pay off your debt in full each month.
3. Compare different card types. Prepaid credit cards don't get reported to credit bureaus. You may be thinking that paying for a credit card up front will give you an easy way to boost your credit score. Think again. Prepaid credit cards do not get reported to the three major credit bureaus and will not help boost your FICO credit score. However, a secured credit card may help you improve your score. This is a credit card with collateral (that becomes the credit limit) and it can be used to improve your credit score, so long as you use it responsibly.
   • A credit card is an agreement: you are allowed to use a certain amount of money, as long as you promise to return it. A prepaid card is just like a transfer of your money into a different account. It won't show future creditors how you handle the contract of promising to pay back what borrow.
   • The difference here could be considered technical, as the collateral you put forth for a secured credit card will cover your credit limit. However, it will be in a separate account, and rather than being spent as you use the card, it will be a final resort for the bank if you fail to pay back what you owe.
   • Not all banks offer secured cards, but many do. See if your bank or credit union offers a card that will help you improve your standing.
4. Get a loan that you can repay easily. If you know you'll be able to pay it off, a small personal loan can increase your credit score. About 10% of your FICO credit score is what's called "account mix," or basically how many different loans and credit accounts you have. If you take out a small loan and are able to pay it back quickly and responsibly, this will help your credit score.
   • Only take out a loan that you know, with certainty, you'll be able to pay back. If it takes several months or years for you to manage the loan, don't bother. Interest rates could eat up any remaining cash, making it harder for you to finish paying off the loan, and increasing your debt. This is simply to increase your credit, not to add more money to your accounts.
   • Join a credit union and apply for a loan there instead of at a bank. A credit union is owned by the members and will often be more understanding about lending small amounts of money to working families.
   • See if you can get a small loan through an online peer-to-peer network to establish your credit. Since the decision of these loans will be made by your peers, there is a higher chance of being approved.
5. Use your resources. A low credit score doesn't mean all your financial opportunities are lost. Especially when seeking a loan, make sure you consider potential areas of assistance.
   • If you own a home but have fallen into debt, check if the value of the property has gone up recently. You may be able to borrow against the equity of your home in order to get the small responsible loan that will increase your credit score.
   • Ask a family member for help. Someone you know who has better credit than you can assist you in this situation. Have them co-sign a loan with you. This will guarantee to the bank that it will be repaid, and allow you the chance to show reliability. Of course, you need to prove to your friend or family member that you are as good as your word to get them to sign!

Tips

• Make sure that you keep all documents regarding your credit, like credit card statements, loan payment slips - and anything else at all to do with your finances. These can help you figure out where your finances are going wrong, and provide evidence should you find any mistakes on your credit report.
• Create a budget to cut down on your monthly expenditure. This will give you a chance to pay off debts, and move you toward a better credit score.

Warnings

• Try not to spend the total credit amount on your cards. It is better to have half of the credit spent on two difference credit cards than it is to have the total amount spent on one.
• Remember that rebuilding your credit score is not going to be an easy task; neither is it going to be one that you complete overnight.

Related Articles

• Remove Collections From a Credit Score
• Get a Perfect Credit Score

Sources and Citations

• http://www.consumer.ftc.gov/articles/0155-free-credit-reports
• http://money.msn.com/credit-rating/9-fast-fixes-for-your-credit-scores-weston.aspx?page=2
• http://moneygirl.quickanddirtytips.com/raise-credit-score-fast.aspx

See also

• Follow the Debt Snowflake Method
• Avoid the Most Common Reasons for Credit Denial
• Build Good Credit
• Pay Off Credit Card Debt
• Build Credit Without Credit Cards
• Get Out of Debt Without Hurting Your Credit
• Borrow Money With Bad Credit
• Get a Motorcycle Loan With Bad Credit
• Manage Your Credit
• Buy Debt

Read more ...