Your credit score determines your eligibility to borrow money, and having a below-average score can make it harder to get a loan or line of credit when you need one. Luckily, there are plenty of simple ways to improve your credit score. Here's what you need to know about how your credit score is calculated and how to boost your score fast.
What Makes Up Your Credit Score?
Before you try to improve your credit score, it's important to understand how it's calculated. Your credit score is a numerical value between 300 and 850. If you have a higher credit score, you have a better chance of being approved for more loans. While there are several ways to compute your credit score, FICO is one of the most commonly used methods.
Your FICO score is made up of:
Payment History (35%): Consistently making payments on time increases your score, and frequent late or missed payments can drag it down.
Credit Utilization or Amounts Owed (30%): The more available credit you use, the riskier lenders think you are. Plan to use less than 30% of your available credit to gain points here.
Length of Credit History (15%): Lenders view a longer credit history more favorably. It pays to keep lines of credit open, even if you don't use them all the time.
New Credit (10%): Plan to apply for new credit only when you actually need it to keep this score high.
Credit Mix (10%): Lenders like to see a mix of credit, like credit cards plus installment loans or mortgages. You don't need to have every kind of loan, but holding all of your debt in one area is viewed unfavorably by lenders.
How to Improve Your Credit Score Fast
Now that you understand how your score is calculated, you're ready to create a plan to increase your score. Try one of the below options to generate a quick bump in your score.
1. Review Your Credit Report for Errors
Mistakes or errors on your credit report can drag down your score for no good reason. You can check your credit reports for free with each of the three major credit reporting bureaus (Experian, Equifax, and TransUnion) every 12 months.
If you find an error, you'll want to immediately report it to the credit bureau and the creditor that provided the information. It may take time to resolve, but you'll see a boost in your score once the errors are corrected.
2. Ask for a Higher Credit Limit
One of the key factors in determining your credit score is credit utilization, or the percentage of how much credit you're using compared to how much you have available. If you have a balance of $500 on a credit card with a $1,000 limit, your utilization is 50% (500/1000 = .5 = 50%).
Now let's say you reach out to the credit card company, and they agree to up your limit to $1,500. In a matter of minutes, you're now down to a 33% utilization (500/1500 = .33 = 33%). Receiving a credit limit increase may change your credit utilization for the better and boost your score.
3. Catch Up on Overdue Payments
Payment history is the highest percentage of your credit score, so getting accounts up-to-date and making timely payments going forward is one of the best ways to improve your score. It can take time for creditors to report this information and for you to see a change in your score. But trust the process and remember that making payments on time and in full will pay off eventually.
The Bottom Line
Improving your credit score won't happen overnight. After you make corrections and put in the effort to get your credit in order, you'll likely start to see changes within a few months. Review your credit report, ask for credit limit increases where applicable, and make payments on time. Following these 3 easy steps may help you start to improve your credit score fast.
Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.
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Original Source: 3 Easy Ways to Improve Your Credit Score Fast