How to Improve your Credit by 100 to 150 Points

29 Sep 2020

Your credit plays a vital role in your financial life when it comes to getting loans and credit cards from banks and authorized financial institutions. Lenders use your credit to ensure whether you qualify for loans and credit cards. Improving credit improves your chances of getting a loan or credit card. Higher credit score means you qualify for lower interest, better loan terms and better insurance rates. Lenders readily approve a loan application with good credit at the most favorable terms.

On the contrary, if you have poor credit, your application for a personal loan, credit card, car loan, and mortgage, etc. may be declined. But improving your credit by some points can make your life easier. For example, if you improve your credit by 100 points from, say 620 to 720, it will make your life easier. Building your credit put you in a different light. Your loan application, which was declined previously, will be approved readily. Even if your credit score is good, you can improve it to become excellent. Building credit is a win-win situation for everyone. Improvement in your credit, even small, can get you something you don’t have. Here we will discuss how to improve your credit score.     

How to improve your credit score?

FICO credit score ranges from 300 to 850. FICO uses customer’s payment history on loans and credit cards, how you use the revolving credit regularly, types of account you have, etc. to generate your credit score. The first step towards improving your credit score is knowing the factors that impact your credit. There are some factors that have more impact on your credit score than others; understanding them will help you improve your credit score fast.  

You can take the following steps to improve your credit score quickly. 

1. Get your credit report and correct the errors

According to the Federal Trade Commission, 1 out of 4 reports contains errors that may affect the credit score. You can get your credit report for free once in a year from each of credit bureaus – TransUnion, Equifax and Experian – and check them for errors. Clerical errors are natural and common everywhere. Lenders can make data entry related mistakes. For instance, your credit report might show a payment as unpaid, which you already paid, due to communication a gap and administrative error. You should dispute these mistakes immediately. Credit bureaus must act on those disputes within 30 days. Once the errors are removed, your credit score will increase. Don’t apply for new credit unless errors are removed from your credit report. 

2. Don’t miss or delay any payments

Your payment history has the biggest impact on your credit score; it can make or break your credit score. No other strategy can improve your credit score unless you are making payment on time. Even missing a single payment can hurt your credit score while skipping an installment will wreak havoc on your credit score. However, missing payments is a human error and everyone of us make it.

If you miss a payment for a long time i.e. by 30 days or more, you should clear the payment and ask the creditor if it will revoke the reported delinquency so that it doesn’t appear on your credit report. While missed payments remain on your credit report for 7 years, by making payments on time, you can dilute its effect on your credit report.

You won’t be able to make significant progress unless you make payments on time because credit scores heavily depend on credit history. And if you make regular payments, it will move your credit score up many notches.  

3. Increase your credit limits

Your credit card utilization influences your credit score in various ways. Ask for a credit limit increase. If you increase your credit limit, you instantly lower utilization while your balance remains the same. Now you have a lot more credit at your disposal and using only a small proportion of your credit limit will improve your credit score. Increasing your credit limit and managing your credit smartly will increase your credit score by many points.

4. Limit your credit utilization ratio

Borrowers with good credit score often have low credit utilization ratio. Using 30% or less of your credit limit tells lenders you are a responsible customer and know how to manage credit well.  You should control a habit of using your credit card for everything. It is good for you to use only up to 30% or lesser of your credit limit. Keeping your monthly balance low will reflect well on your credit score. Getting a personal loan at a lower interest rate for debt consolidation helps you reduce credit card balance, lowering your credit utilization. 

5. Open a new credit account

Opening a new credit account is another way to increase your credit utilization. If you don’t carry any balance on your new credit card, your available credit will immediately improve by the new credit card’s limit. It is advisable to apply for a new credit card that doesn’t have annual charges. You should get a new credit card from a bank where you already have your bank account.

However, running a balance on a new credit will defeat the purpose of getting that card for credit repair.   

6. Stop hurting your credit score

Avoid damaging your credit by applying for a loan or credit card with multiple banks or other financial institutions. When you apply with multiple institutions, it creates a hard inquiry on your credit report. Too many hard inquiries on your credit report harm your credit score even if you have a good credit score and a good track record of managing your finance. Instead, you should use online tools to get information about cards or loans and to know where you qualify. Apply where chances of approval are high.

And if you tend to overspend, cut down on your expenses to free up cash. If you reduce some percentage of your credit limit, it will make a positive impact on your credit score, and when you have less credit, you can pay it more easily.

Credit scoring has complex calculations, and knowing the most important factors considered in credit calculation can be helpful to improve your credit by 100 to 150 points.