Building a credit score is a lot like getting physically fit: It's best accomplished over the course of years, not in weeks or days.
However, sometimes you don't have years to wait. If you want to buy a house and apply for a mortgage, for instance, you need to increase your credit score now, not in six months or a year.
The good news is that you can make a difference in your credit score in the very short term. Think of it as a crash diet for your credit score. It may not be a complete, long-term solution, but it can make a noticeable difference.
Let's get started.
1. Correct errors on your report
The first thing you should do is order your free credit report at AnnualCreditReport.com. (Watch out for "free" credit reports from other sources; some of them are not so free after all.)
It's common for credit reports to have errors on them. One error can do serious damage to your score. The higher your score, the more damage one negative report can do.
If you find an error on your credit report, contact the credit bureau in writing. Include copies of any documentation you have, such as receipts. Send your letter by certified mail, return receipt requested.
You should also contact the creditor or other information provider in writing and tell them that you dispute an item.
2. Pay down your credit cards
One of the most important factors in your credit score is your credit utilization ratio. This is the total amount of consumer debt you owe, divided by your available credit. You should be using no more than 50% of your available credit. Less is better, and zero is fabulous.
If you can pay off your credit cards with available cash without jeopardizing emergency funds or other necessities, do it. Otherwise, stop spending money, sell something, work extra hours, and do whatever else it takes to get your debt balances down.
To make your credit look especially shiny, stop using your credit cards temporarily. You don't know what day of the month your bank may report to the credit bureaus, so they may report a hefty balance even if you pay it off every month. Pay the cards off and leave them at a zero balance so that your available credit ratio will be at its best.
3. Increase your available credit
Another way to improve your credit utilization ratio is to increase the available credit side of the equation. This can be as simple as calling your credit card company and asking for a higher credit limit. If you've made your payments on time, they'll probably be glad to grant you more credit on the spot.
You can also apply for more credit cards to increase your available credit. However, this can cut both ways. Your score will get temporarily dinged a few points when you apply for new credit. If you have a lot of cards, you may also get dinged for too many cards. Apply for new cards only if you don't have too many (more than a few) already and if you cannot improve your credit utilization ratio any other way.
4. Use credit if necessary
You have to actually use credit cards and other sources of credit to build a credit report. If your credit history is mostly a big blank because you don't use credit, you need to start using it.
Do not go into consumer debt to improve your credit score. Carrying a balance is not necessary. In fact, because carrying consumer debt at high interest rates is so destructive to your long-term financial success, it will eventually harm your credit history and score.
A small purchase now and then on a credit card is all you need to build a payment history. Always pay it off on time.
5. Ask alternate sources to report
Perhaps you have no credit cards, auto loans, or other consumer debt. However, you've been faithfully paying your rent, utilities, and cell phone bill. You can still have a credit history.
Some creditors are not required to report your history of payments and account status to the credit bureaus. However, they may do so if you ask them to.
You may be asked to pay a fee to have the credit bureaus add verifiable accounts to your credit history.
6. Close unused accounts strategically
Your credit score may be lowered by having a dozen or so credit cards. If you open a department store card every time they offer you 15% off for doing so, you can wind up with a pile of plastic in no time. It's time to close some of them.
Choose the cards you want to close carefully. Save the cards you've had the longest, because length of credit history is important in calculating your score. You might also want to keep cards with sizable credit limits if you need to watch your credit utilization ratio. Get rid of all those extra cards with low credit limits.
Be sure to actually close the accounts by contacting the bank. Cutting up a card doesn't close an account.
7. Have a mortgage lender request a rapid rescore
Let's say you've applied for a mortgage and you're just a few points away from qualifying for a loan or getting one at a preferable rate. There's one more step you can take.
If you've taken steps to improve your credit history but they haven't made a difference yet, you can have your mortgage lender request a "rapid rescoring." You may need to provide proof to the mortgage company of the new information that should be considered, and some lenders require you to pay a fee. You'll get your new, improved score in about 72 hours.
If the new score helps you get into your new home or pay lower interest expense over the life of the loan, the fee you pay for rapid rescoring may be the best investment you've ever made.
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