How To Improve Your Credit Score

Guide on How to Improve Your Credit Score

For banks and employers, a credit score is a fast way to assess a person’s creditworthiness. When it comes to getting a home mortgage, lenders like to use a combination of credit scores, payment history, credit vs. debt ratios, and alternate indicators.

In short, a credit score is a person’s financial profile. Even though it’s not the ultimate deciding-factor (especially with large loans), many lenders have a “minimum score requirement” to be approved for a loan program.

In many cases the credit score itself is only used as a preliminary check.

What’s Included in the Report

The higher your score, the more likely you’ll be approved for a mortgage loan. A bad score can influence the rates, and terms you’re offered. For large loans (i.e. mortgage or auto loan), it may determine a lender’s terms and penalties as well.

Credit score breakdown

  • Payment history = 35%
  • Amounts owed & utilization = 30%
  • Credit history length = 15%
  • New lines of credit = 10%
  • Loan and credit types = 10%

According to a Experian report, in the U.S. the average credit score is 703.

How to Improve Your Credit Score

Fixing your score isn’t an over-night thing, but there are things you can do to improve it significantly within 3-4 months.

Below are three things you can start doing to improve your credit score.

1. Get A Free Credit Report Online

The first task is to find out what’s preventing your credit score from improving. You’ve probably seen the commercials promoting “free credit reports online”. It’s actually true, but you can get a free copy of your credit report from all three credit bureaus.

Best Websites for Free Credit Reports
  1. Experian Free Credit Report
  2. Equifax Free Credit Reports
  3. Transunion Free Annual Credit Report

If you’ve already received your free credit report online, you can check use one of the free score estimator on Credit.com or Bankrate Simulator. They will give you a range of where your credit score probably falls.

Most of your credit card companies will give you a free credit report also.

Pay Off Some Of Your Debts

If you want to improve your credit score, the amount of debt you owe vs. the amount you can borrow (your credit limit) accounts for 25% of your credit score.

Since lenders report balances every month, changing that debt-to-credit ratio is the fastest way to improve your credit score.

6 Ways To Improve Your Credit Score in 30 Days

A better credit score isn’t something that’s attained overnight. Depending on your situation it can take a month, or several years to fix it.

Pay cards with small balances first
Too many cards with outstanding balances can be a huge red flag. Try to pay off the ones that have the smallest balances first.

No more late payments
Credit score problems such as a late payment (or missed payment) can stay on your credit report for up to 7 years and is 35% of your total credit score.

Request a credit line increase
The only way to lower your credit vs. debt ratio, besides paying it off, is to increase your credit line.

Don’t over-utilize a credit line
Spending more than 75% of a given credit card credit line drops your score. You should work on this ratio and can see improvement on your score for each 10% in available credit that you pay off.

Fewer credit line requests
Basically stop applying for loans and credit cards. A lender “inquiry” is a small hit to your credit score.

Make sure to pay your utility bill
Consumers may not realize that internet, gas, and electric bills are show up on a credit report.

Special request if you are late.

If you have a history with a lender and don’t have a habit of late or missed payments, they may help you out if you happen to be late on a payment. As long as it was a one-time incident, the customer service rep will probably help you by removing from your score.

Credit report disputes may take up to 30-days.

Get a side job.

It might not be an ideal situation, but mobile app jobs are on the rise – food delivery, local tasks, and home cleaning. In cities like Seattle, gig jobs have better pay and worker protection than years prior.

What Hurts My Credit Score

Good and Bad Credit Score Chart Number Chart

When you’re applying for a home mortgage loan, your credit score has a big influence on the mortgage terms you get offered. A bad credit score can make the difference between a 5% down payment vs. 10% down payment.

  • Don’t close out you credit card accounts. It’s tempting to close out your cards after paying down a lot of debt, but closing an account reduces your credit line, and therefore increases your debt-to-credit ratio.
  • Don’t fall for credit repair scams. Don’t trust claims that a company can simply erase large hits to your credit such as a bankruptcy, home eviction, or past foreclosures. During the Coronavirus pandemic, Seattle banks are foreclosing on homes and businesses, which opens the door to unsavory credit repair companies.
  • Don’t apply for new credit when paying down debt. Opening a new account seems like a fast fix, but in a lender’s eyes, it makes you more of a risk. Try not to open new accounts if you owe money on a card or personal loan.

How To Improve My Credit Score

There are ways to improve your credit score, but there’s no easy or fast way to do it.

You’ll have to commit to financial discipline to stay debt free. By following some of the guidelines above you’ll be able to negotiate better terms when you want to close on a home or apply for a mortgage loan.

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