Bad credit could be keeping you from getting approved for mortgages, loans, and other forms of credit. Or, if you are approved, you could be paying drastically more for the privilege of borrowing.
Most people don't really understand how to increase their credit score, or that we even have the power to do so. With so many credit score myths swirling around the internet, it's hard to separate fact from fiction. For instance, a TransUnion survey found more than half of consumers believed salary, employment history, and age affect credit scoring—even though that's completely false.
Fresh from college, I worked hard to make ends meet and support my family. Given how hot the real estate market was at the time, we were moving every two years, pretty much circumnavigating the Tampa Bay area by 2010...lol
If I wasn't taking out a home equity loan to get CreditLoan.com off the ground, I was using every personal credit resource I had to pay for business needs.
While I never needed to urgently boost my credit (back then you could get a "no doc" loan for up to $2 million with no money down and no income verification...insanity!), I had student loans that fell through the cracks once or twice, and it slowed me down tremendously.
Like me, you might even think you're doing a pretty good job managing your credit health, but without understanding the formula that's used to calculate credit scores, you could be doing more harm than good, or at the very least slowing down your progress.
Credit score basics
Even if you're making good money, a shabby credit score means you're paying more than other people for things like home insurance, a mortgage, car loans, and credit cards—not to mention a host of other perks. Liz Weston, a financial columnist, puts it this way: "The lifetime cost of higher interest rates from bad or mediocre credit can exceed six figures."
Did you just do a double take?
Because that's not an exaggeration… six figures! If an entity deems that you're not credit-worthy based on a less-than-stellar credit score, you are at its mercy.
Although average credit scores are up overall (2016 yielded an average score of 673, up from 667 in 2015), one group, in particular, is struggling–people aged 30 to 39. This demographic has the largest population of consumers with FICO scores below 620. (FYI: FICO and VantageScore are the most popular scoring models, both ranging from 300-850).
Considering most in their thirties are buying homes, paying off student loans, getting married and starting a family, low credit scores can make it harder to climb out of debt.
What's more, people are starting to carry higher debt loads just as they did before the financial crisis hit. The National Foundation for Credit Counseling (NFCC) noted compared to last year, more U.S. households are carrying credit card debt from month to month (39% vs. 35% in 2016), with nearly 2 in 10 adults carrying balances in excess of $2,500.
Every month a credit score is not managed, a portion of your hard-earned income goes to waste.
Some additional damage a poor credit score can do:
- keep you from your dream job (certain professions do a credit check as part of the hiring process).
- send your rental application into the "reject" pile (landlords check, too!).
But here's the good news: There are things you can do right now, and in the next 24 hours—yes, between today and tomorrow!— you can improve your credit score. In less than one day, you can start the wheels turning towards a healthier credit life, with some simple tips.
Learning how to fix your credit score is a task just as important as . If you can reach the top tier of credit (800+), you'll pay less in interest each month, and put more money in your pocket to work toward other goals, like saving for retirement or finally affording that Hawaii vacation.
Even if you've made some credit blunders in the past, the great thing about credit scores is that your most recent behavior weighs the most heavily. Plus, even small improvements of 20-30 points, such as going from a 680 to a 710 score, can move you into a higher tier, and therefore, qualify you for better terms.
To really impact your financial life in 24 hours, follow the action steps below.
The "how to fix my credit score" improvement countdown starts now…
1. Put plans in place to never miss a payment, and protect your score forever
All it takes is one misstep–like letting a month go by without paying a credit card bill–for your credit score to take a hit. "According to FICO data, a 30-day delinquency could cause as much as a 90- to 110-point drop on a 780 FICO Score for a consumer who has never missed a payment on any credit account.
The real damage is in the long term. A late payment remains on your credit report for up to seven years, even though the impact on your score diminishes over time. The longer you pay your bills on time after being late, the more your FICO score should increase. But it takes time to make up for lost ground. Here's why: Payment history is the number one factor in credit score calculations, accounting for 35% of your score.
Your main goal should be to commit to good payment patterns starting today.
Here's what you can do:
Set up reminders. Log onto your accounts and set up notifications so that you receive an email or text message reminding you when due dates are approaching.
Automate payments. If remembering to pay the bills is challenging, set up automatic minimum payments. Follow the prompts on the credit card provider's site, and connect payments to a bank account. Consider this a failsafe backup plan to check off the "fix my credit" item on your to-do list.
Pay more. Of course, paying just the minimum and accruing interest on your balance will keep you in debt for a longer period of time (which isn't doing your credit score any favors… more on that later though), so log on and make additional or above minimum payments whenever you can.
Treat all accounts seriously. Although some bills might not have an immediate effect on your credit score if you put them off (like medical bills, rent, utilities, parking tickets, and cell phone bills), unpaid bills could be sent to collections. Then the delinquency isreported to the credit bureaus as a negative item, which is particularly damaging to your credit score.
Paying your bills on time is always the number one driver of a good credit score, says myFICO spokesperson Barry Paperno. "There is simply no way around the need for minimum monthly payments on each account with a balance. No exceptions," he says.
When it comes to how to easily raise your credit score, never missing a payment is the best thing you can do.
2. Fix credit report errors and watch your score soar
Scary thought: Imagine if you're doing everything right, but you're getting penalized for someone else's mistake? Unfortunately, it happens more often than you'd think. With so many players involved in shaping your credit score, mistakes can be made by:
- the credit reporting agency (i.e. not recognizing a payment was made)
- the bank or card issuer (i.e. not taking off note of late payment)
- your former spouse's credit behavior (i.e you are getting penalized for them declaring bankruptcy)
- identity fraudsters (i.e. someone else's behavior!)
The good news is, you can nip these mistakes in the bud by keeping tabs on your credit reports and correcting errors.
"Part of being a smart consumer is managing your credit history and your credit score," affirms Jean Chatzky, director of education and editor in chief of Savvy Money. Better yet—your efforts will be rewarded. "A good credit score gets you lower interest rates, thus saving you money."
Here's how to ensure all the information on your credit report is 100% accurate:
- Pull your three free credit reports from Experian, Equifax, and TransUnion. Go to AnnualCreditReport.com, fill out the form, and scrutinize each carefully.
- If you notice anything, such as a late payment, and you know you paid on time, file a dispute to correct the errors.
- Head to the bureau website corresponding to the report with the error(s) you found:
- - Experian
- - Equifax
- - TransUnion
Follow the instructions on how to file a dispute. It may involve explaining the error, and/or uploading documentation to support your claim.
For example, if the report shows you paid a bill late, and you can show proof via a bank statement that the payment was made on time, download or scan in a copy of the bank statement as evidence of the timely payment.
Patience and persistence are key
After filing disputes, it can take up to 30 days for the bureaus to investigate. After 30 days, recheck your reports to make sure the errors are removed or corrected. This could result in a significant bump in your score. If this seems like a waste of time, trust me- it's not!
Approximately 20% of consumers who identified and corrected errors on just one of their three major credit reports experienced an increase in their credit score. Odds are you're leaving a large amount of points on the table, so why not make a credit report examination part of your 24-hour-journey-to-better-credit checklist?
3. Pay down close-to-max balances for an immediate credit score boost
You might assume that as long as you're paying your bills on time every month, your score should be high.
Guess what? That's not enough.
Your credit score also depends heavily on how you are using your available credit–in other words, your utilization ratio. Or put another way, how high are your balances?
Paying a chunk of debt can help you achieve rapid improvement since utilization ratio is the second most important factor, accounting for 30% of your credit score calculation.
Here's how debt utilization works:
Say you have a $4,000 credit limit and your balance is $3,000.
That means you are utilizing 75% of that credit line—a super high ratio.
That will send a signal to the credit scoring algorithms that you're not managing your debt very well.
But…if you can pay that balance down to $1,000, you will have reduced your utilization rate to 25%, and your FICO score will be positively impacted.
Here are the next major steps
- Look. Examine your account statements and jot down the balance and the credit limit for each.
- Count. Calculate the utilization rate on each card. The formula is simple: It's just your balance divided by the credit limit.
So if you have a $10,000 limit and are carrying a $5,000 balance on one card, that's a 50% utilization (5,000/10,000 = 0.5).
If you have a $4,000 credit line and owe $800 on another card, that's a 20% utilization (800/4000 = 0.2).
3. Choose. Opt for the card with the highest rate. In the above example, you would direct your efforts to the card with 50% utilization.
4. Spend. Yes, spend—but specifically, spend some cash to make a large payment. If you have a savings account, bonds to cash in, items you could sell, or another source of cash, use it to pay down balances as much as you can.
The closer to being debt-free (or zero utilization), the better for your score. In fact, those with the best credit scores (over 800) utilize only7% of their available credit.
Lowering your utilization percentage is one of the best things you can do to improve your credit score.
4. Ask for more credit to pump up your FICO
So if paying down your debt can lower your utilization, increasing your available credit can also boost your credit score. All it takes is a phone call, or a visit to the creditor's website.
Let's say you owe $7,500 on a card with a $10,000 limit. If you can get your credit line increased to $15,000, your utilization will go from 75% to 50%–just like that!
Call your creditor using the 800 number on the back of your card and follow the prompts to speak to a customer service representative. Present your request factually, by stating how long you have been a loyal customer, point out that your account is in good standing, and ask if a credit line increase is available. Alternatively, visit the creditor's website and search for the "credit line increase request" option.
A few things to note:
Be realistic. This method is only effective if your account is actually in good standing. If you've missed payments in recent months or are close to maxing out your line, your request may be declined.
Exert willpower. Don't spend more just because a higher credit limit is now available. That will defeat the entire purpose of having the higher utilization percentage.
Take it from Lou Carlozo, personal finance contributor to Money Under 30: "This strategy only works for a person who's very disciplined—and knows they won't charge more simply because they have access to a higher credit line."
A tip I use when speaking with customer service is to address the representative by their first name. These calls can so easily devolve into unpleasantries, and the best way to get what you want is to recognize the person on the other end of the line has their own equally complicated life.
Finally, don't try this approach on more than one card at a time. Creditors run your credit to make decisions, and credit line increases are a "hard inquiry," just as if you were applying for a new account. The inquiry will temporarily lower your credit score by a few points, but if the increase is approved, the better utilization rate will wipe out the points loss and then some.
Bottom line: An improved utilization rate is another fast-track to a better credit score. If you think you meet the criteria to qualify for a credit increase, it's an easy, pain-free way to improve your credit score.
5. "Trick" the system to maximize your score
Once you get credit utilization under control, you're ready to move into the next phase–manipulating the credit scoring system. It's not as sinister as it sounds. Essentially, playing around with your bill-paying schedule can earn you a few more precious credit score points.
That's because even if you pay your balance on time and in full each month, when your payment is received after the date your balance is reported to the credit bureaus, it could show that your balance and your utilization ratio is high.
Doesn't seem fair, right?
Here are the next major steps
Call your issuer. Ask when your balance gets reported to the credit bureaus. The date is often the closing date (or the last day of the billing cycle) on your account, which is different from the "due date" on your statement, says Beverly Harzog, credit expert and author of "The Debt Escape Plan."
Get on a schedule. Make sure you're paying the bill before the closing date. This way, your reported balance will be low or zero. FICO will then be using less than your full balance to calculate your score, hence lowering your utilization and boosting your score.
"If you continue to charge up the card between receiving your bill and paying it off on the due date a couple of weeks later, your reported balance will be higher," says Rob Berger, founder of the personal finance site Dough Roller. "This increases the chances that when the credit bureau takes the snapshot, your credit utilization will be higher."
Just by changing up the timing, its possible to spend and pay the same amounts, your FICO score will reflect a different behavior—and it will be in your score's favor!
6. Pay your bill more than once per month (it's a nifty score-boosting trick!)
If you're the type of person who does a lot of charging and then pays your balance off in full, you might think that you're doing everything right. Remember: the finicky FICO score is based on monthly reporting, and your high balance–even though it's temporary–can hurt you.
Personal finance writer Maryalene LaPonsie explains how multiple payments can keep your utilization lower:
"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% credit utilization rate, and not a good thing as far as your score is concerned."
To fix the problem, says LaPonsie, make payments at least twice a month to keep your running balance lower. And, pay off large purchases right away.
Let's review a few of the easiest ways to pull off this trick:
- Set up bi-weekly automated payments.
- Make a habit of logging on to pay off a purchase as soon as you're home from the mall.
- Make a partial payment on every pay day.
Why wait for a particular calendar day to pay your bills when splitting up your payments can keep your utilization lower? It's just a slight tweak, but it could get you those coveted extra credit points.
7. Keep your oldest accounts going strong for a credit score bump
Credit history affects 15% of your score, and it turns out you do have some control over it (and, no—time machines are not involved!).
To maximize this part of your score, use your oldest credit card the most.
With plastic, the concept of "use it, or lose it" is very much in play. Therefore, if you toss your old cards into the back of your sock drawer, it's likely that the issuers will close them due to inactivity.
When this happens, as far as FICO is concerned, it lowers the average age of your accounts, dinging your score.
Personal finance writer Shannon Insler recommends heading to the sock drawer (or freezer… or bottom of your wallet…or wherever you're hiding 'em from yourself) and fishing out that old credit card. Then, do one of two things:
Set up a small recurring charge on the account. (I do my Netflix membership, which makes my entertainment splurge feel partially productive!).
Stick the card in your wallet and use it for purchases like gas or a well-deserved pumpkin spiced latte. (Hey—you've earned it after all of this credit score improvement work!)
Why go through all this? Among FICO "over-achievers"— of those whose scores are above 785 (show-offs!)— the average credit account is 11 years old.
Maintaining the length of your credit history is an easy way to improve your score. It's kind of like connecting with a grade school pal on Facebook–you might not have a lot in common anymore, but you share a history worth revisiting from time to time, and you never know when you might need an old friend.
8. Get an installment loan, and raise the (credit score) roof
Another component accounting for about 10% of your credit score is "credit mix." If you're someone who only has credit cards and no other debt, this works against you.
FICO rewards you for how you manage a variety of credit products, including installment loans.
Personal finance expert Amy Fontinelle explains:
"You may be able to improve your score by taking out a small loan and repaying it as promised—in other words, by adding some positive activity to your credit history. Also, because installment loans add to your mix of credit, if your credit history doesn't already include this type of loan, obtaining one might improve your score."
Be sure to keep the following personal loan dos and don'ts in mind to build your credit, courtesy of personal finance writer Rebecca Lake:
- Shop around for the best rate.
- Apply for a loan with just one lender (submitting numerous applications will get reported as (dreaded) hard inquiries.
- Make sure you understand all terms of the loan (in other words, read the fine print).
- Borrow only what you need—no more.
- Make all payments on time.
This method won't work for everyone (for instance, if you have a poor credit, you might not qualify for a loan in the first place), but it could be ideal for those aiming to push past a good score plateau into the excellent range.
Don't hesitate! Jump in right now
So there you have it—eight easy ways to improve your credit score in 24 hours—just pick a day and make it happen!
Doing all of these steps at once is a bit much to take on. It's OK. I recommend starting with one or two of the action items (the first three are the most impactful) and revisit the list again another day. When I take on a big project, pace is crucial—a spontaneous lunch date with my wife here, an hour on the elliptical there. Sprinkle in what keeps your energy up and makes you happy!
Since you're interested in learning about the impact of your credit score on your personal finances, here are a few more articles you may enjoy:
- What Is a Good Credit Score?
- Credit Reports: A Beginner's Guide
- Everything You Need to Know About Experian
Have you used any of these or other techniques to improve your credit? How did it work for you? Let us know in the comments below.