How to Improve Your Credit Score (and How Long It Will Take)
There are many ways to improve your credit score. They range from paying down debts and reducing your credit utilization to simply making on-time bill payments each month. But you can remove guesswork from the equation by signing up for a free WalletHub account. We’ll tell you exactly how to improve your credit score and even how long it will take, as part of your Credit Analysis.
Credit improvement isn’t complicated, fortunately enough. Credit scores rise and fall based on the information in your major credit reports. The more positive info and the fewer negative records they contain, the better your credit score will be. That’s why it’s so important to understand what goes into your credit score. And it’s why you don’t need to get fancy to improve your credit score.
Rather, there are a number of simple steps you can take for the sake of credit improvement, and we’ll explain them below. We’ll also dispel some common credit-improvement myths, give you a sense of the timetable you’re looking at and more.
8 Easy Ways to Improve Your Credit Score
Check for Errors
Disputing credit report errors is one of the easiest ways to improve your credit score. After all, roughly one in five credit reports contain an error, according to the Federal Trade Commission. And there is a defined process for disputes, which doesn’t have to take much time or effort.
Have Open Trade Lines in Good Standing
Lenders relay account information to the major credit bureaus every month. And the more accounts you have in good standing, the more positive information will find its way into your credit reports. This will either water down negative records or help expand a thin file.
While credit cards and loans both report to the major credit bureaus on a monthly basis, the former are far more accessible for the average consumer. Loans, of course, require repayment of whatever amount you borrow, but a credit card with no annual fee doesn’t have to cost you a thing.
When in Doubt, Get a Secured Credit Card
If you have bad credit and are unable to get a “regular” credit card, open a secured credit card. Secured credit cards are easier to get than most other credit cards because they require a refundable security deposit, which usually acts as your spending limit. And they look just like any other credit card on your credit report.
You can also increase your available credit simply by adding to your deposit, which may improve your credit score a bit. When you close your account, you will get your deposit back, minus any outstanding balances.
Do NOT Appear Desperate for Credit
Applying for a credit card can lead to a slight dip in your credit score, especially when you apply repeatedly in a short period of time. Each application might leave you with less money to pay for addition credit card or loan, for one thing. And that’s a bad thing from a lender’s perspective. Even more importantly, applying in bulk tells lenders that you are desperate to borrow, which doesn’t bode well for your ability to pay.
So if you don’t get approved for an unsecured credit card after one or two rejected applications, opt for a secured card. Secured credit cards are great for credit improvement because they pretty much offer guaranteed approval.
Mind Your Credit Utilization
Try to maintain a credit utilization ratio below 30% on each of your credit cards. A higher ratio will hurt your credit score, as it indicates that you are stretched thin.
Credit utilization is calculated using the balance listed on your monthly statement. So you can improve it by spending less each month, paying your bill multiple times per month or asking for a higher limit.
Don’t Close Unused Accounts
A lot of available credit and a long credit history are essential for a great credit score. That’s why it’s unwise to close old accounts, even if you no longer use them. Doing so will reduce your available credit, lead to a higher overall credit utilization ratio, and even make it look like you haven’t been using credit for very long.
You should not, however, pay an annual fee to keep an unused account open. Rather, you should close accounts that are costing you money and use the savings to pay down debt or build an emergency fund.
Build a Long Credit History
Lenders, landlords, employers and other decision-makers are more likely to trust people with a long track record of responsible money management. Positive information in your credit reports about recently-opened loans and lines of credit will help. But without a broader sample size, your ability to keep it up will remain in doubt.
“The bottom line is that you need to establish a good credit history,” says Cynthia Saltzman, head of the economics department at Widener University. “And of course, that takes time.”
If You Don’t Trust Yourself, Take Precautions
Some people struggle with remembering to pay their credit card bills on time. If you are one of them, call your credit card company and ask them to automatically withdraw your monthly payment from your checking account.
Others get tempted by credit cards and incur unnecessary debt. If you are one of them, the right solution isn’t necessarily to close all of your credit cards, but instead to keep some of them open yet locked into a drawer (or even cut into a million pieces) so that you do not end up using them.
When to Start Improving Your Credit Score
You should always be working to improve your credit score. That goes for pretty much everyone. Very few people have perfect credit, after all. And credit scores are always changing, based on the latest information in our credit reports. Plus, a good credit score is a product of responsible habits, which must be groomed over time.
With that being said, the urgency with which you should approach credit improvement depends on your current standing and immediate financial goals – buying a house, for example. Having foresight of these credit-dependent events – especially those whose terms are difficult or costly to change – will give you time to take the steps necessary for maximum credit improvement.
In other words, your overall personal-finance strategy should be geared toward building and maintaining an excellent credit rating over time. But it’s particularly important to get your financial house in order before any big event where your credit standing is likely to be a deciding factor.
5 Costly Credit Improvement Myths
There are many myths about credit, from the idea that NSPL cards don’t have spending limits to the notion that Mastercard’s Black Card is the one celebrities talk about. But no matter what you may have heard, these ideas about how to improve your credit score should not to be trusted.
It Helps to Not Pay Your Credit Card Bill in Full
The argument behind this urban myth is that credit card companies prefer it when customers leave a small balance from month to month because it enables them to make money on interest. In other words,
interest payments are almost like a bribe, and paying off your full balance will lead to issuer resentment and a lower credit score. This is totally NOT true!
First of all, credit bureaus track the information that makes up your credit score and credit scoring companies ultimately tabulate these scores. Credit card companies merely represent an information source and therefore cannot manipulate your credit score based on whether or not they glean interest revenue from you. What’s more, credit card finance charges can be expensive, so always pay your full bill if you have the ability to do so.
You Have to Make Purchases to Build Credit
Simply having an open credit card that is in good standing will improve your credit score. Making purchases and on-time payments will expedite the process, but locking away a card with zero balance isn’t a bad idea if you don’t trust yourself to use it responsibly.
Bear in mind, however, that some creditors will close your account due to inactivity if you don’t use it for a prolonged period of time. So you may want to make a small purchase once in a while and then pay the resulting bill in full each time.
Closing Old Accounts Will Improve Your Credit Score
Many people suggest closing old, inactive accounts as a way to improve credit. But in many cases, that may actually hurt your credit score. It could increase your overall credit utilization and effectively shorten your credit history, if it’s your oldest open account.
You Can Pay to Remove Negative Items from Your Credit Report
Negative records such as late payments will remain on your credit report for 7-10 years after they are first posted. Paying off the account before the end of the set term doesn’t remove it from your credit report, but the account will be marked as “paid.” That may or may not help your credit score, depending on the particular model used.
You Can Hire a Company to Improve Your Credit Score
We’ve all seen the advertisements for “credit repair” services that promise miracle fixes to your damaged credit in return for a hefty fee. They’re a rip-off. There are no shortcuts to credit building. All that a credit repair company might be able to do is get errors removed from your major credit reports, but you won’t typically need help to do that. If you one of the credit bureaus refuses to remove a legitimate error, hiring a lawyer will pay far greater dividends than getting in bed with a shady credit repair organization.
“I think what happens is people hear what they want to hear,” says Gail Cunningham, vice president for membership & public relations with the National Foundation for Credit Counseling. “They need to remember what their mother told them, that if it seems too good to be true it probably is. But we get emotionally involved. … We just find ourselves putting commonsense on the shelf for the moment, and perhaps believing what a sales person is telling us, we follow their advice. We think, ‘they’re a professional, surely they wouldn’t advise me to do something that’s not in my best interest.’”
It’s also important to recognize that even the most reputable credit repair organizations will only provide temporary assistance. They aren’t a panacea; the consumer still has a lot of work to do, and too many people overlook that fact. “People who use those services rarely deal with the underlying financial conditions or habits that caused them problems in the first place,” says Mary Jo Wiggins, a professor of bankruptcy law and vice dean at the University of San Diego School of Law. “So, they use those services for a fee, maybe getting some short-term relief, and then they end up right back where they started from because they haven’t dealt with the source of the problem, only the symptoms.”
How Long Will It Take to Improve Your Credit Score?
Someone with damaged credit who can only get approved for a secured credit card can generally improve to fair credit and an unsecured credit card within 12-18 months. But that assumes they use that secured card responsibly. And the timeline varies based on how much information (positive or negative) is in a person’s credit report.
You can get a better sense of how long it will take to improve your credit score by signing up for a free WalletHub account. Our personalized Credit Analysis will pinpoint what’s wrong with your score, how to fix the problem and how long that will take. Plus, you’ll get a front-row seat for the credit-improvement process, as WalletHub is the only site that offers free credit scores and reports that are updated on a daily basis.
- The key factors that affect your credit score are your payment history, the length of your credit history, the amount of debt you have, and the percentage of credit you use in relation to the amount of credit that is available to you.
- Before you can start improving your credit score, you need to make sure that negative information is no longer being added to your credit files. For example, you don’t want to have an open credit card account on which the lender continues to report you as being delinquent.
- The pace at which you can improve your credit score depends on how much positive information is required to overcome your existing negative or limited credit history. If you have a lot of negative information on your credit report, it will take longer. And you will need more positive information to reach a higher credit tier.
- No matter where you are starting from, you want to have as much positive information as possible flowing into your credit reports on a monthly basis. For example, three credit card accounts reporting that you are on time with your payments is better than one account. Similarly, a credit limit of $2,000 is better than $200, and a secured card is the only type of credit card that allows you to have direct control of your credit limit.
- Your rate of credit score improvement will depend on many factors. But there are steps that you can take to expedite the process. The more you do, the faster your credit score will improve.
You can always gauge your progress by ordering a free credit score. Just realize that the score you get may not be the exact type used by a prospective lender.
There are a number of fairly quick ways to improve your credit score, at least a bit. But building a consistently good or excellent credit score is a process that cannot be rushed, despite what you may have heard on TV or the radio. Rather, true credit improvement is the product of positive information regularly flowing into your major credit reports. And responsible credit card use is the easiest way to bring that about.
Finally, while the work and discipline required to build a great score might lead to some initial discouragement, remember that your wallet will thank you for sticking with it.
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