Any reputable financial adviser will tell you that building your credit takes time. You need to demonstrate good credit habits over a long period to earn an excellent credit score. That said, there are a few shortcuts for those who need to improve their credit quickly — like in the next six months. If you need a quick credit boost, here’s what you should do.
The five credit score factors
In order to improve your credit score, you need to know what influences it. Your credit score is calculated based on these five factors:
- Payment history (35%)
- Credit utilization (30%)
- Length of credit history (15%)
- Types of credit in use (10%)
- New credit (10%)
All of this data is taken directly from your credit report.
I need to improve my credit as quickly as possible, what should I do?
The first thing you should do is pull your free annual credit reports at annualcreditreport.com. If this information is incorrect, your credit score will also be incorrect. Pull your credit reports and use this NerdWallet article on how to read your credit report to check for errors. If discrepancies exist, follow these five steps for disputing them.
After you’ve verified that your credit reports are error-free, move on to the five factors. Here’s how to increase your credit score — or avoid decreasing your score — for each factor:
Payment history. Make all of your payments on time. This is crucial to building and maintaining a good score. There’s a chance that your late payments won’t be reported immediately — but why take the chance? Furthermore, why incur the late payment fee? Always make your payments on time.
Credit utilization. Here’s where you can really improve your score fast. If your utilization ratio — or percentage of your debt balance to your credit limit — exceeds 30%, you need to pay it down as soon as possible. Use excess savings and discretionary income. Need more cash? Take these steps to make more and/or spend less.
Length of credit history. You can avoid hurting your score here by not applying for new credit accounts or closing old credit accounts. The length of credit history is the average length of your collective accounts, so you’ll want to avoid shortening it.
Types of credit in use. Not applying for new accounts is more important than having a good mix of credit accounts. However, there’s one thing you could do to keep an existing credit mix diversified. If you have credit card, car and student loan debt, pay down the credit card debt first. These revolving accounts will remain open while installment loans like car debt will likely close when you pay them off, effectively decreasing your credit account mix.
New credit. Don’t apply for anything new until you have to. Applying for new credit results in a new credit penalty to your credit score, which will decrease your score by several points.
Bottom line: Take the steps above to either increase your score quickly or keep it from decreasing. Also, understand that building excellent credit takes time, and this credit bump likely won’t put you exactly where you want to be. After your quick credit score improvement, continue to work on your score to get approved for the best credit terms in the future.
Good credit and bad credit image via Shutterstock