3 Ways to Raise Your Credit Score by 100 Points

by Kailey Hagen | Sept. 26, 2019

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No matter what your credit goals are, these three tips can help you achieve them.

Lenders roll out the red carpet for borrowers with high credit scores, while those with fair or poor credit are more likely to get the door slammed in their faces. It's understandable because lenders wouldn't stay in business very long if they kept giving money to people who couldn't pay it back. But that doesn't make it any less frustrating when you need a loan or line of credit and no one is willing to work with you. 

A smiling couple looking at paperwork at a table.

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1. Check your credit reports and correct any errors

Your credit report is supposed to be a reflection of your financial history, but financial institutions sometimes make mistakes, like forgetting to close a loan account that's been paid off or confusing you with someone who has a similar name. Everyone is potentially susceptible to these kinds of errors and they can be devastating to your credit score. That's why you must check your credit reports regularly to ensure they're accurate.

Everyone is entitled to receive one free copy of their credit report every year from each bureau through AnnualCreditReport.com. Look yours over and check for outdated or inaccurate information. If you spot accounts you don't recognize, that could indicate that a financial institution has confused you with someone else or an identity thief has opened an account in your name. 

Notify the credit bureau and the financial institution associated with the incorrect information and tell them what is wrong. They will have to do an investigation to determine if the information is truly inaccurate, and they are legally required to correct mistakes in your credit report if they are indeed mistakes. Credit bureaus typically have 30 days to investigate the issue once you've reported it and must notify you within five days of completing their investigation to explain their decision. They'll also send you an updated copy of your credit report.

If you believe you've been a victim of identity theft, you should also place a fraud alert on your credit report. This tells lenders that they need to take extra steps to verify your identity before opening up new credit accounts in your name, and it can help deter future identity thieves.

2. Pay all of your bills on time

Payment history is the most important factor in your credit score calculation. Late payments indicate that you don't handle your money responsibly and that you may be living beyond your means. Even a single late payment can drop an excellent credit score by over 100 points, according to FICO data. (If only on-time payments could raise your score as quickly!)

Unfortunately, a single on-time payment isn't going to make any significant dent in your credit score. You need several months of consistent, on-time payments before your credit score will begin to rise by any significant amount. As the late payments age, they'll start to have less of an effect on your score as your recent payment history begins to take precedence. After seven years, those late payments will fall off your credit report entirely and it will be as if they never happened.

Set up automatic payments or reminders for yourself if you struggle to remember to pay your bills on time. If the issue is a lack of funds to pay your bills, reevaluate your budget and look for ways to cut cash, like dining out less. You could also consider downsizing or starting a side hustle to get more money coming in. 

3. Limit how much credit you use

The second-most important factor in your credit score calculation is your credit utilization ratio -- how much credit you use versus how much is available to you. Someone with a $10,000 credit limit who routinely charges $5,000 per month to their card would have a credit utilization ratio of 50%. 

Ideally, you should keep yours under 30% if you'd like to improve your credit, and the lower, the better, as long as that number is above zero. Avoiding using credit entirely won't help you because that doesn't give lenders a sense of how you'll respond when you do borrow money. 

There are a few ways to reduce your credit utilization ratio: First, you could simply charge less to your credit cards each month. If you're carrying credit card debt, paying that off could also help lower your ratio because you'll have more credit available to you. 

Another option is to request a credit limit increase, but this isn't a good idea unless you feel pretty confident you'll be approved. When you request a new line of credit, and sometimes when you request a credit limit increase, your card issuer does a hard inquiry on your credit report, which could drop your score by a few points. This isn't an issue if you're approved because the subsequent decrease in your credit utilization ratio will more than make up for this small loss. But if you're denied, you may have just lowered your score for nothing.

Following these three steps will help you steadily improve your credit score over time, but you have to have patience. Your credit score is meant to provide lenders with a long-term view of how responsible you've been with money and so no matter how well you stick to your new habits, you won't see changes overnight. But given time, you can turn that bad credit score into one that will have every lender wanting to work with you.

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