If you are like most people, your credit score is rarely on your mind until you decide to apply for a loan. If you need to act quickly to improve your chances on being approved for a loan, there are several things you can do. Understanding the factors that go into your credit score can help you increase yours.
FIVE RULES TO LIVE BY
- Your payment history is 35% of your score. This shows how responsible you are when you borrow money. A big part of this is being able to pay your bills on time and even more importantly not having any red flags such as applying for bankruptcy.
- You should only be using up to 30% or less of your credit.
- If you have paid your bills consistently over a long period, this can be helpful. Older generations have the advantage here since someone with 10 years of punctual payments, may have an easier time being qualified for a loan then a person with only one year.
- Do not open too many accounts. This shows that you are depending on borrowing to keep up with your expenses. It is better to open them slowly over time, then multiple accounts at once.
- There are also different types of debts. Credit bureaus keep credit card accounts versus student loans, car loans and mortgages separate.
HOW TO ACT ON THOSE RULES
There are a few quick ways to raise your credit score mostly by focusing on the first two rules:
- Payment History
- Utilization
If you are able to pay off a large sum of debt at once, go for it! This helps your interest and will raise your credit utilization and is one of the fastest ways to raise your credit score. If times are hard for you financially, consider picking up a side job to help earn extra income to pay things off quicker.
You could also ask to raise your credit limit, which also helps your credit utilization ratio. If you have a decent credit history and are a long-standing costumer, chances are your credit card company will agree to it. If they decline this, the next best thing would be to open another credit card only if the new card comes with a generous credit limit.
A credit report error is fatal to what could be a decent credit score. An alarming 20% of credit reports contain errors. If you find one on yours, fix it as quick as possible and you will see an immediate boost. It is essential to review your credit report bi-annually to make sure everything on record is correct.
Becoming an authorized user on someone else’s credit account can help in a few ways. If the initial cardholder pays their bills on time, those payments will help your record. This credit limit will also be added to your existing limit and help decrease the credit utilization score. Most importantly, you do not have to actually use the card you issue yourself to, as long as you have partnered with a dependable person.
In the grand scheme of things, building credit takes time, but these few rules are an easy way to create a rapid boost.
