If you are in the market for a mortgage or car loan, you probably understand how important it is to have a high credit score. The better your score, the lower interest rate and more favorable terms you will be offered on a loan. If your score is less than stellar, though, you may be wondering whether there is a way to increase it quickly. While it will not be easy, there are ways that you can improve your score by 100 points.
Deal with Inaccurate Information
The first step is to request a copy of your credit report and credit score so you know exactly where you stand. It is important to review your credit report carefully for any inaccurate information. There could be erroneous information on your report that is lowering your score. You can dispute incorrect information with the three bureaus, and claims are generally resolved within 60 days.
Payment History
Next, you will want to look at the accurate information on your credit report. Make a plan to pay off any collections, charge-offs or other negative public records, such as tax liens and judgements. If you are behind on payments on your revolving accounts, bring these up-to-date as soon as possible. One of the most important factors in determining your credit score is timely payments, so the sooner you can clear up delinquent payments, the quicker you will start to see your score increase.
Once you have brought your accounts up-to-date and dealt with items in collection, it is important to make every payment on time, as payment history makes up 35% of your credit score. Missed payments can remain on your credit report for seven years, and the more recent the missed payment, the more it will affect your credit score.
If you regularly forget to pay your bills on time, consider signing up for automatic payments. The amount will be automatically deducted from your bank account each month, so you never have to worry about missing a payment.
Credit Utilization
Credit utilization, which is how much of your available credit you are using, accounts for 30% of your credit score. To maximize your score, you do not want to use any more than 30% of your available credit. Thus, if you have a total credit line of $10,000, you want to carry a balance of no more than $3,000.
If you are using more than 30% of your available credit, there are a couple ways to solve this problem and increase your score. The first option is the best one: pay down your debt. Take a look at your budget to see ways to decrease your spending in other areas so you can devote more funds to your credit card debt. Pay down your balances and keep them as low as possible to increase your score.
The other option is less ideal. If you qualify, you can get an additional credit card and transfer balances from the high-balance cards to this new card. You can spread your debt amongst multiple cards to keep your credit utilization below 30%. Instead of a credit card, you could also opt for a debt consolidation loan.
If you take this second option, there are a couple things to keep in mind. First, it is imperative you do not incur additional debt on your new and existing cards. This will put you in further debt, which will continue to damage your credit. In fact, if you are trying to improve your credit score, it is important to stop using your credit cards all together, unless you can pay them off in full each month.
Additionally, if you do transfer a balance, look for a 0% introductory offer so you are not taking on additional fees and interest charges.
Whenever you apply for a new loan or credit card, the lender will make an inquiry on your credit report. These “hard pulls” will negatively affect your credit score in the short-term, so you want to limit the number of cards for which you are applying.
Conclusion
Since it will take time to dispute incorrect information and resolve negative issues, it will also take time to rebuild your credit. You will not gain 100 points over night, but if you create a plan and stick to it, you can improve your situation faster than you may believe possible.