Photo: Sean MacEntee via Flickr.
It's important for most of us to have healthy credit reports and credit scores, as landlords, insurers, lenders, and others look at our credit ratings and make decisions accordingly. If you want to be offered the best interest rates on loans, for example, you'll need a high credit score. There are many ways you can improve your credit score, including some obvious ones like paying down your debt and paying bills on time. But those can take a while to pull off or to take effect. Below are some ways to improve a credit score quickly.
First, though, to get a sense of how soon and how much you might improve your credit score, know that it's recalculated every time someone requests a look at it. According to the folks at credit agency Experian: "Your credit history is being updated continuously. Information is being added and deleted as your payments are reported, accounts are opened or closed, and outdated information is removed."
Know, too, what credit scores are made of. About 35% of the widely used FICO score is tied to your payment history, 30% to how much you owe relative to what you can borrow, 15% to the length of your credit history, 10% to the various types of credit you're using, and 10% to new accounts you may have opened.
1. Get a credit card if you don't have one
Living without credit cards offers some advantages -- namely, preventing you from racking up credit card debt -- but it will also prevent you from building a strong credit history. Lenders like to see you responsibly using credit. If you're not a good candidate for a regular credit card, look into getting a secured credit card, which ties your credit limit to money you have deposited in a bank or credit union account.
2. Fix mistakes on your report
A relatively painless way to improve a credit score is to fix errors on your credit report. You can get a free copy of your credit report from each of the three main reporting agencies (Equifax, Experian, and TransUnion) each year via AnnualCreditReport.com. Study each one, and if you spot mistakes, follow the error-fixing instructions at the website of the agency involved. Errors might include an account that isn't yours, one or more late payments that you actually made on time, an account you closed being listed as open, or an incorrect credit limit being listed for a card. Identity theft is a growing problem in America, and if you've been a victim, your credit report might include accounts that someone else opened in your name. It's smart to review your credit reports regularly.
3. Open one or more new accounts
It seems counterintuitive that you can improve a credit score by getting new credit cards, but you can. There's a cost to this tactic, because applying for a new card will add a "hard" inquiry to your credit report that will typically knock your score down a bit. (Hard inquiries reflect that you're trying to get credit -- e.g., when applying for a car loan or mortgage -- while "soft" inquiries include checks on your credit by insurers or your current lenders.) Still, the benefit can outweigh the cost. That's because much of your credit score is made up of your credit utilization ratio, which shows how much of your available credit you've tapped. Thus, if your credit limits total $10,000 and you owe $5,000, your ratio is 50%. If you can add a credit card or two and raise your total limit to $20,000, then your ratio will drop to 25%. (Don't let yourself rack up more debt just because you have a higher limit, though.) Having a ratio below 30% is good, and below 10% is even better.
4. Have an installment loan on record
If you haven't been making regular payments on time toward a mortgage or car loan or student loan, your credit score can suffer. An ideal credit record includes both revolving credit (i.e., credit cards) and installment loans (mortgages, car loans, etc.). You might take out a small personal loan from your bank or credit union and begin making the required monthly payments on time to improve your credit score. Be sure that the loan will be reported to all three major credit bureaus.
5. Use an old card
If you have an old credit card that you don't use any more, you might be able to improve your credit score by using it a little. It may have fallen off the radar of the credit bureaus and may not be factored into your current score. Using it -- and paying the bill on time -- can give your score a boost.
6. Just ask
Finally, consider calling your credit card company to ask whether your credit limit can be raised -- that is, if you won't be tempted to charge more on the card -- and whether any late payments might be removed from your record. If you only have one late payment and have otherwise been a good customer, you have a chance to improve your credit score just by asking for a "goodwill adjustment."
If you can improve your credit score so that it's in the 700s (or, ideally, the high 700s), you'll be setting yourself up for the sweetest lending deals and other good outcomes.
