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Tips to Improve Your Credit Score Fast
Jenius Bank Team1/9/2024 • Updated 12/6/2024
A high credit score may help you access lower rates or exclusive offers. Your credit score tells lenders a lot about your financial habits. High scores could indicate responsible financial behaviors and may help you qualify for lower rates or exclusive offers. Low scores may make it harder to get approved for loans or credit cards or result in higher rates on these products.1If your credit score is lower than you’d like, there are steps you could take to help improve it over time.
Key Takeaways
- Credit scores change over time, and certain actions may cause your score to increase or decrease.
- Making monthly payments on time, reducing your credit utilization, and consolidating debt may help you improve your score.
- Good credit scores may help you qualify for loans and other financial products more easily.
Credit Score Overview
Your credit score is a number that gives lenders and other interested parties an idea of your financial habits. This score is used to make certain lending or credit decisions. Scores range from 300 to 850 on both the FICO and VantageScore models, with higher scores indicating that you engage in good financial practices like paying your bills on time.What’s a Good Credit Score?
Achieving and maintaining a good credit score is a goal for many people. According to Experian, in 2023, approximately 71.6% of Americans had scores of 670 or higher, putting them solidly in the “good” category.2So, what exactly counts as a good score? Credit scores range from 300 to 850, with 300 being the lowest (or worst) score and 850 being the highest (or best) score. But this largely depends on the scoring model you’re looking at. As mentioned, lenders commonly use two credit modeling methods: FICO and VantageScore. With the FICO model, “Good” scores are between 670 and 739, “Very Good” scores are between 740 and 799, and “Exceptional” scores are 800 and above.3 Vantagescores have slightly different brackets, with scores of 661 to 780 considered “Good” and scores of 781 to 850 considered “Excellent”.4While these are the guidelines the models have established, lenders are free to set their requirements. Some may consider a score as low as 650 to be a good score, while others may set the bar higher at 700. Due to these varying requirements, comparing lenders before you decide to apply for a financial product may be helpful.Why Does Having a Good Credit Score Matter?
Good credit scores tend to show lenders that you’re a financially responsible person who pays their bills on time. This strong credit score may translate to some meaningful benefits, such as:- Higher likelihood of approval. Lenders use your credit score to gauge your riskiness as a borrower. A higher score usually indicates lower risk and may make you more likely to be approved for a loan or new line of credit.
- Qualify for lower rates. Having a good score may result in lower rates on money you borrow. The lower your rate is, the less interest you pay over the life of the loan, which could save you hundreds or thousands of dollars.
- Higher credit limits. Lenders may reward your good financial habits and good credit score with higher credit limits or larger loans.
- Access prescreened offers. Credit card issuers often want to work with individuals with good credit scores and may send prescreened offers with unique benefits or rewards to encourage these individuals to apply.
- Better insurance rates. Insurance companies often examine your credit history when deciding how much you should pay in monthly premiums. The better your score is, the more likely you may be to have lower premiums.
How to Improve Your Credit Score
Aiming for a good credit score is a smart idea, but what should you do if your score is low? Use these tips to help you build your credit back up.Track and Monitor Your Score
No matter how many good habits you have, monitoring your score to ensure these habits are paying off is a smart practice.There are several ways to monitor your score. For example, your bank or credit card provider may offer credit monitoring services, or you could also use a third-party service.Pay Bills on Time
Paying your mortgage, credit card accounts, and other bills on time each month may also boost your score. When you make payments on time each month, it establishes a positive payment history and when that history is reported to the credit bureaus, it may boost your score. Keep in mind that not all payments are reported to the bureaus. For example, some utility companies and landlords don’t report your payments. That said, you may be able to request that your utility provider or landlord report your good payment history to the bureaus if they’re not doing so already.Check Your Credit Report for Errors
Even minor errors on your credit report could impact your score and cause it to drop. Get in the habit of checking your credit report with each major credit bureau at least once each year. You’re able to do this for free through AnnualCreditReport.com . Once you have the report, look for errors. Some common ones include the following:5- Accounts that are current but being reported as late
- Incorrect account opening dates
- Incorrect reported credit limits
- The same debt or loan showing up more than once
- Incorrect accounts reported due to identity theft
Improve Your Credit Utilization Ratio
Your credit utilization ratio refers to how much of your available credit you’re using at any given time. For example, let’s say you have two credit cards with a combined credit limit of $10,000. One card has a balance of $3,500 and the other has $4,000, so in total, you’re accessing $7,500 worth of credit. Therefore, your overall credit utilization ratio is 75%, or 7,500 divided by 10,000.The higher your credit utilization ratio is, the more negatively it may impact your credit score. Lenders typically want to see credit utilization ratios of 30% or less as it shows that you’re able to use the credit you have responsibly.To improve your utilization ratio, try to pay down your balances over time. You may consider employing a debt payoff strategy, such as the debt snowball or debt avalanche method, or using a personal loan to consolidate your debt. As your balances drop, your utilization ratio improves and may also improve your overall credit score. Another way to improve your utilization ratio may be by opening a new line of credit to increase the total available credit you have access to. Just remember that opening a new line of credit results in a hard inquiry on your credit report and may cause a minor score decline.Wait for Negative Items to Fall Off Your Report
Luckily, negative marks (also called derogatory marks) on your credit report don’t stick around forever. In fact, credit bureaus only report negative items for specified time periods. Some negative items that may be reflected on your credit report include:6| Derogatory Marks | Timeframe |
|---|---|
| Hard inquiries | 2 years |
| Missed payments | 7 ½ years |
| Repossession | 7 years |
| Collections | 7 years |
| Student loan delinquency or default | 7 years |
| Chapter 13 bankruptcy | 7 years |
| Chapter 7 bankruptcy | 10 years |
| Foreclosure | 7 years |
Apply for New Credit Intentionally
Anytime you open a new line of credit, your credit score takes a hit because lenders perform a hard credit check before approving you for the product. Hard credit pulls allow lenders to review your full credit report and signal to the credit bureaus that you may be taking on more debt. Be intentional when applying for new credit. Try to avoid applying for new cards or loans back-to-back to reduce the number of hard credit checks on your record, as this may help keep your score higher.Consider Consolidating Debts
Consolidating your debts may also help improve your credit score. When you consolidate debt, you’re effectively rolling the balance of one or more debts into a debt consolidation loan or a new line of credit, ideally with a lower rate. This may improve your credit score for several reasons.First, it may lower your credit utilization ratio since you’re either opening a new line of credit or using a loan to pay down the balance of an existing card or cards. Second, it alters your credit mix by diversifying the types of debt you have on your credit report. Consolidating debt may also save you money in the long run by letting you access a lower rate. This may allow you to pay off your debt faster and pay less in interest over time.How Fast Can You Boost Your Credit Score?
The rate at which your credit score improves depends on several factors: how low your score is, the types of challenges you’re trying to overcome, and how much debt you have. If you’re starting from scratch or have a bad credit score, making even minor changes to your habits could have a dramatic impact. If you catch up on missed or late payments and do what you can to pay down what you owe on your debt, you may see your score increase by as much as 100 points in a month or two.Alternatively, if you’re trying to recover from something like filing for bankruptcy, your score may not increase as much as you’d like for several years.If your score is already high, congratulations! Although, if you’re trying to make it even higher, just understand that small changes may not move the needle as much for you as they would for someone with a lower score.Final Thoughts
Actions like paying bills on time, monitoring errors in your credit report, and making intentional credit choices all could help you increase your score over time. Your credit score plays an important role in your financial health, and it’s never too late to work on improving it.Financial WellnessBorrowing & Credit