I am not here to tell you that you can boost your credit 100+ points in the next 30 days. Depending on your current credit situation, it may not happen right away, so please stay clear from places and people who claim that they can do a quick fix for your credit within a short period of time.
Here are strategies that, if implemented and maintained, will greatly improve your credit although it may not happen overnight as I had mentioned before. Also keep in mind that this post is geared towards those who have already taken care of bad credit (or have at least gotten it under control) or just want to increase their credit score. For those who still have that bad credit baggage dragging you down, you will need to do a few things before starting these credit boosting strategies. Since I have already blogged about that topic, please check out the post: Repairing Your Credit: The Painful Truth.
Credit Scoring Factors
When boosting credit, you have to take in consideration to the credit score factors. In particular, the ones that hold the most weight. There are multiple factors that make up a credit score, think of it as if it’s a pizza with uneven slices.
If you want a detailed breakdown of your credit, you can check it out on my blog titled Understanding Your Credit: How Are Your Credit Scores Calculated?.For the purposes of this blog post, I will focus on the big three as they are the ones that you can gain approximately 40+ points on but I will briefly mention the others. You can also check out this useful table from Asksebby.com
1) Payment History
This is the most important one out of all of the factors regarding your credit. Credit history holds a whopping 35% of your score on FICO and 40% on VantageScore (Vantage what? Check out my blog titled Understanding Your Credit: How Are Your Credit Scores Calculated?, to learn more), so of course, if you aren’t paying on-time, your score will drop exponentially. The reverse can be said if you make timely payments. Making payments every month after the statement closes and before the due date makes this happen.
Why after the statement close date? So that it can be recorded as a payment and if you pay it before or by the due date, it will show as a on-time payment.
Payment history is calculated as a ratio which is your on-time payments divided by your total payments.
So for instance, if you had made 10 on-time payments on a credit card and have had 20 total payments since you had the card which means you were late 10 times. This would give you a payment history ratio of 50%. If you have 100 on-time payments and had a total of 101 payments since you had the card, which means that you had 101 statements and only had one late payment, you have a 99% ratio.
Looking at that table above:
- Excellent is 100% Payment History
- Good is 99%
- Fair is 98%
- Poor is 97%
- Very poor is less than 97%
You can see how strict the credit scoring system is on your late payments and how messing up can really mess up your score. Makes sense, since you have to show that you are financially responsible and paying on-time is a strong indicator.
Just make your payments, on-time, all the time! Even if it’s just the minimum but as I have said before, you shouldn’t dive into trying to use credit right now if you have bad credit and you shouldn’t use credit if you can’t pay for that something with the cash that you already have. Of course, student loans are an exception to that rule, but you should focus on clearing that up first before diving into anything else, including credit cards and other loans.
You can’t buy a house with your bad payment history. You can’t even rent an apartment or get a job if you can’t show that you can make timely payments. Seriously, its really hard to move with bad credit and many jobs want you to have good credit to get that position and since it practically takes up half of your credit score, you will have bad credit if your payments aren’t timely.
2) Credit Utilization
Credit utilization is the second most important aspect of your credit. The lower it is, the better it is for your score. What is credit utilization? It is the amount of credit that you have taken out compared to the limit amount that was given to you by a loaner. It is also a ratio percentage like payment history.
So keeping your utilization between 0% and 9% would work wonderfully while improving your credit. So will 10%-29%. I wouldn’t go any higher than that.
I had once.
My utilization went up to 37% as I wasn’t paying attention to the closing statement date on one of my cards. Had the cash, so paying it off wasn’t the issue, I honestly thought I had some more time before the statement date had closed. Man, big mistake. Dropped my score down 28 points! Oi vey! Believe me when I say, that WILL NOT happen again!
It has jumped back up, since I have been more attentive.
So think about it, while keeping it low and making on-time payments, guess what kind of magic will happen to your score.
3) Derogatory Marks
This ties directly into payment history. MAKE YOUR PAYMENTS ON TIME AND YOU WON’T HAVE ANY DEROGATORY MARKS! Clear any errors that is on your report, such as an incorrect late payment. They generally have 30 days to rectify this. Of course, if you have a bankruptcy, you can’t do much about that mark until 7 years have past but once it does, get it removed if it’s not automatically. After clearing up those bad grades on your report card, keep it in the clear.
The Rest of the Pie
As I said before, its a pizza pie, stay with me here!
Of course, the other parts of your credit is important too so you shouldn’t ignore it.
Credit history is great and has a decent amount of weight to it regarding your scoring but you don’t really have control over it. Yes, if you have credit for 10 years, it will show as you having credit for 10 years however, once you add other forms of credit, it gets averaged which will make it go down. Really, the only thing that you can do with credit history is wait.
Total accounts is basically what it is, your total accounts. You don’t have to go and get loans everywhere in order to increase your accounts. I’m not. Different credit cards will do just fine, but don’t just randomly open credit cards for no particular reason either!
Credit inquiries may hit you 1 or 2 percent or so. Still, like I just said, don’t just open accounts to open accounts.
Alternative Hack: Authorized User
I am not really fond of using this idea but it is an option. Some benefits would be that you will be able to piggyback on someone (typically family or close friends) else’s credit. If you know someone who has a high credit limit, long credit history, and low utilization AND they are willing to put you on as an authorized user, that is an option.
The dangers in this lays in a persons spending habits. For the person given the authorized user status, if that main account holder decides to max out their card or goes default, it will show on your credit report as well and will decrease your score. It won’t show any other accounts the main account holder has, just the one that you are an authorized user for.
For the main account holder, if that authorized user gets a card and really doesn’t know how to manage their money, they will mess up your credit in due time by increasing your credit utilization. Also, all liability lays on the lap of the main account holder. So if the authorized user decided to go on a shopping spree and doesn’t want to pay you back, you can not go after them for repayment.
Have I done it? Yes, with my husband who had an old bankruptcy and was rebuilding his credit. Will I do it again? Yes but only with my husband. We trust each other financially. If you are comfortable with doing this and trust that person as well as want to help that person fix their credit, go for it.
That’s pretty much it! Focus on the big three to get your score into the upper 700s. If you want a perfect score, then of course, you have to work on the rest. Things don’t happen overnight when it comes to improving your credit, only when it comes to destroying your credit.
Keep these tips in mind and you’re well on your way to having great credit and opening tons of possibilities and paying less in interest and fees.
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