You can ruin your credit score in just moments, but building it back up takes much more time. It's no wonder so many of us find ourselves confused and helpless when we diligently run our annual credit report only to discover our scores are so much lower than we'd like.
In the long-run, you'll need to practice responsible borrowing behaviors if you want to bring your score up and have a credit score lenders will love. Paying down debt, making on-time payments, and keeping old cards open are all essential steps you must take to get the best score possible.
But, if you don't have time to wait, there's salvation in these four strategies to give your credit score a quick boost when trying to snag a loan or sign a new lease.
1. Fix any mistakes on your credit report.
One out of every five credit reports likely has errors on it, according to the Federal Trade Commission (FTC). Many of these errors are big mistakes that made a notable impact on the credit score. In fact, the FTC indicates 20% of consumers who spot an error have such a big score increase after it's fixed that they move into a lower risk tier. Moving into a lower risk tier means loan rates and terms are much better.
If you haven't checked your credit report lately, you may be one of the millions with errors without even knowing it. Now's the time to find out. Visit AnnualCreditReport.com and request a free credit report from at least one of the three major credit reporting agencies (Equifax, Experian, and TransUnion). You're entitled to one report from each of these agencies each year.
Compare the report with your own records, very carefully. If you spot mistakes, you can dispute them online with Equifax, Experian, and TransUnion. You'll need to provide info about the error so the credit reporting agency can investigate. The agency will reach out to the creditor reporting the disputed information. If an error is discovered, the incorrect info will be removed from your credit report -- and, hopefully, your score will go up.
The process of investigating a dispute typically takes around 30 days, so don't wait until you need a loan to try to get mistakes corrected. And don't be afraid to point out any errors, or anything you suspect might be an error.
2. Ask for a credit line increase.
Credit utilization ratio is one of the most important factors determining your credit score, with payment history being the only aspect that carries more weight than this. Your utilization ratio equals credit currently used divided by available credit. A $500 balance on a card with a $1,000 limit means a 50% utilization ratio.
Paying down debt is one way to improve your utilization rate -- and it's the right way, because you also save on interest. But there's a shortcut that may be available: increasing your credit limit. In other words, if you can't reduce the numerator (debt), then increase the denominator (credit).
If your $1,000 limit became a $2,000 limit and your $500 balance remained the same, your utilization ratio would fall to 25%. To get the most favorable credit score, your ratio needs to be below 30% -- so this could make a big difference.
Asking for a credit line increase could result in a hard inquiry on your credit report, which happens when lenders check your credit if you apply for a new loan. Unfortunately, too many inquiries can also hurt your score because applying for too much credit is concerning to lenders. But, the good news is, often you can get an increase without a hard inquiry. Just call your credit issuer and ask. If you've been a good customer for a while and have paid on time, they're very likely to say yes -- especially if your income has gone up recently.
3. Write a goodwill letter to your creditors.
Did you know one 30-day delinquency on your credit report -- for paying a bill at least 30 days late -- could lower your credit score by as much as 110 points if your score was otherwise excellent? Because payment history is the most important factor in determining your credit, late payments have an outsize impact. So having them removed from your record could boost your credit score quickly.
If you legitimately made a late payment, don't try to dispute it; you won't be successful. Instead, try contacting the creditor reporting the delinquency and asking if they'd remove it as a gesture of goodwill. This type of letter is often dubbed a "goodwill letter," and it's likely to be successful if you're a good customer who usually pays on time but made one mistake in the past.
When you write a goodwill letter, be specific about what info you're asking the creditor to remove from your record. And you may want to include a brief explanation for why the error happened. While this likely won't work if you have multiple late payments or are currently delinquent, it can work when you've mostly been a responsible borrower. It can't hurt to ask!
4. Consider becoming an authorized signer if you can.
Do you have a parent or older relative with great credit who's had a credit card that's been open forever? If so, you can ask if they'd be willing to list you as an authorized signer on the card.
When you're listed as an authorized signer, the account is usually reported on your credit report. This means you benefit from the positive payment history and the account lengthens the average age of your credit. Your own score should get a quick increase as you piggyback off of the responsible borrowing behavior of your generous loved one.
The best way to build credit is to be a responsible borrower
While all these tricks can help you boost your credit quickly and easily, ultimately the best solution for building credit is to practice responsible borrowing. Avoid maxing out cards or taking out tons of new loans at once, and pay your bills on time. If you do that, over time, you'll build a credit score you can be proud of.