Like it or not, your credit score dictates everything from whether you’re approved for a credit card to what interest rate you’re offered on a mortgage or other loan.
So, with the economy now teetering on the brink of recession as the coronavirus pandemic sweeps the nation, you would be wise to get your credit score in tip-top shape ASAP. Your financial security might soon depend upon the strength of your score.
Here are some 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 credit report from each of the three big nationwide credit reporting companies:
By law, you’re entitled to one free report every 12 months. When you request it, be ready to print it 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 affect your job prospects. Some employers pull credit reports before making hiring decisions.
You may also want to sign up for a free account with Credit Sesame, which will give you an idea of how your reports are shaping your credit scores. You’ll also get to see your VantageScore from TransUnion, one of the three big credit reporting companies.
2. Pay down your balance
According to Fair Isaac Corp., aka FICO, the company that calculates one of the most widely used credit scores, 30% of your FICO 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 rate.
For example, if you have a $10,000 credit limit and a $5,000 balance, your credit utilization is 50%. If you’ve maxed out that $10,000 limit, your utilization is 100%.
There are many theories on the ideal credit utilization rate, but Experian suggests it’s best to have a rate of less than 30%. In other words, you should never have more than $3,000 charged at any time if you have a $10,000 limit.
If your credit utilization rate is high, paying down your balances is a quick way to lower that rate and thus boost your score. For more ideas on tackling debt, read “8 Surefire Ways to Get Rid of Debt ASAP.”
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 reporting companies 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 pay it off. But depending on what point in the month the credit card company reports your statement balance, it might look like you have a $1,000 limit and a $1,000 balance every month. That’s a 100% credit utilization rate.
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 increasing your credit limit, apply for a card from a different issuer. It will still help your credit utilization rate, since your utilization rate is based on all your open lines of credit and balances.
So, an individual with $10,000 in credit who owes $5,000 will have a 50% credit utilization rate regardless of whether that $5,000 is on one card or spread across multiple cards.
Be aware, though, that opening multiple accounts at once is not good either. Having 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 by applying for more than one new card if you’re going to try this strategy.
To compare credit card offers and find the best one for you, check out Money Talks News’ free credit card search tool.
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 feel you need professional help restoring your credit, check out “Need to Repair Your Credit Score? Here’s How.”
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 account.
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, explain you have no intention of using the 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. Then, your credit report will reflect the primary cardholder’s on-time payments and (hopefully great) credit utilization rate. As a result, your credit score gets a boost, too.
While these 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.
Find the right financial adviser
Finding a financial adviser you can trust doesn't have to be hard. A great place to start is with SmartAsset's free financial adviser matching tool, which connects you with up to three qualified financial advisers in five minutes. Each adviser is vetted by SmartAsset and is legally required to act in your best interests.
If you're ready to be matched with local advisers who will help you reach your financial goals, get started now.