Get your sagging score into shape this spring by taking these steps.
Like it or not, your credit score dictates everything from whether you’re approved for a credit card to what rate you’re offered on a mortgage.
As the economy has recovered from the Great Recession, many Americans have managed to get on better footing, but nearly one-third still have “bad” credit scores (under 600), according to credit.com. If you are one of them, it’s time to give that baby a boost. Here are seven of the fastest ways to increase your credit score.
1. Clean up your credit report
Before you do anything else, go to AnnualCreditReport.com and request a free credit report from each of the big three credit reporting companies:
By law, you’re entitled to one free report each year, no matter what. When you request it, be ready to print or save it to your computer.
Once you have the report, examine everything. In particular, look for any accounts that show late payments or unpaid bills. If that information is inaccurate, the report should tell you where to send a dispute.
Keeping a clean credit report isn’t only important for your credit score; it can also make or affect your job prospects. Employers can and do pull credit reports before making hiring decisions.
2. Pay down your balance
According to myFICO, the consumer division of FICO, the company that calculates one of the most widely used credit scores, 30 percent of your score is based on the amount you owe.
However, it’s not simply how much you owe that’s important. It’s how much you owe compared with how much credit you have, a ratio known as your credit utilization. For example, if you have a $10,000 credit limit and a $5,000 balance, your credit utilization is 50 percent. If you’ve maxed out that $10,000 limit, your utilization is 100 percent.
There are many theories on what is the best credit utilization level, but on its website, Experian suggests it’s best to have a rate of no more than 30 percent. In other words, you should never have more than $3,000 charged at any time if you have a $10,000 limit.
If you owe more than that amount, paying down your balances is a quick way to boost your score. Live lean for a few months, hold a garage sale or pick up a temporary second job to find the cash needed to drop your credit card balances.
For more ideas on tackling debt, read: “8 Foolproof Ways to Pay Down Debt.”
3. Pay twice a month
You might think you’re doing great because you pay off your card every month, even if it’s maxed out. The problem is that your creditors are only reporting balances to the credit bureaus once a month. If you run up a big balance each month, it could look like you’re overusing your credit.
For example, assume you have a credit card with a $1,000 limit. It’s a rewards card, so you use it for everything. In fact, every month, you hit your limit. The statement arrives, you owe $1,000, and you send in a check to pay it off. The problem is the credit card company is likely reporting the statement balance each month. So it looks like you have a $1,000 limit and a $1,000 balance. That’s a 100 percent credit utilization rate, and not a good thing as far as your score is concerned.
You can help alleviate the problem by breaking up your credit card payments. Go ahead and charge everything to get the rewards, but send in payments at least twice a month to keep your running balance lower. In addition, if you make a large purchase on your card and have the cash handy, pay it off immediately.
4. Increase your credit limit
Maybe you’re not in a position to pay down your balances. You could take a different approach to improving your credit utilization rate: Call your creditor and ask for a credit limit increase.
If you’ve maxed out your $1,000 card and get a limit increase to $2,000, you’ve instantly cut your credit utilization rate in half. The key is to not spend any of your new credit. It defeats the purpose of getting a limit increase if you immediately charge the card up to $2,000.
5. Open a new account
If your current credit card issuer balks at the idea of giving you a credit increase, apply for a card from a different issuer. It will still help your credit utilization rate, since your score lumps all your open lines of credit and balances together.
An individual with $10,000 in credit and a balance of $5,000 will have a 50 percent credit utilization rate regardless of whether her or she has all those amounts on one card or spread out over multiple cards.
Be aware, though, that opening multiple accounts at once is not good either. Too many new accounts can make you look like you desperately want to go on a spending spree. Don’t risk dinging your credit score — apply for only one or two new cards if you’re going to try this strategy.
6. Negotiate outstanding balances
Maybe your credit score took a dive because you have bills in debt collections. You can’t wipe out past mistakes from your credit report, but you can do some damage control by settling them.
Dummies.com has a short, easy-to-understand primer on how to negotiate your debt. The most important step is to get an agreement in writing.
If you don’t have any cash on hand to offer as a settlement, you can sell some of your stuff or try one of these “20 Clever Ways to Make Extra Money.”
7. Become an authorized user
Finally, if none of the above suggestions helps you, don’t despair. There is one final option, and that is to be added as an authorized user on someone else’s credit card.
Now, for this to work, you’ll need to find someone who loves you very much and who manages his or her money very well. Once you find this very special person who is going to do you a HUGE favor, you need to cross your heart and hope to die while explaining you have no intention of using their credit card. You just want to be added to their account as a way to build credit.
You see, when you’re an authorized user, the account will show up on your credit report so long as a card has been issued in your name. Then, your credit report will show all the cardholder’s on-time payments and (hopefully great) credit utilization rate. As a result, your credit score gets a boost, too.
While these seven strategies can raise your credit score fast, keep in mind that “fast” is a relative term. You won’t see results overnight; give it three months or so for the changes to begin affecting your score positively.
Do you have other tips for raising your credit score fast? Share them in comments below or on our Facebook page.