Having bad credit creates significant challenges for people trying to get ahead in life. Bad credit affects your ability to purchase a vehicle. It adversely impacts your ability to secure quality housing, including rental and homeownership situations alike. Having bad credit even gets in the way of making smaller purchases online using split-payment services such as PayPal’s Pay-in-4 or Affirm.
There are many reasons people have undesirable credit ratings. Medical emergencies, unemployment, and identity theft are all possible causes. Poor planning, financial recklessness, and a lack of understanding about how credit reporting works also bring your credit score down. Regardless of the reason(s), when you have bad credit it is important to know how to improve your score fast. How do you find your credit score? Are there quick ways to improve your credit score? What do you do if you find charges against your credit you did not make? Read on for tips and guidance on how to improve your credit score fast.
Your Credit Score & the American Dream
There are perhaps as many nuances to the pursuit of happiness as there are people living in the U.S. pursuing it. The 1944 Economic Bill of Rights stated the American Dream is meant to include proper housing, stable employment, health care and an education. Regardless of preference, there has historically been two ways for U.S. consumers to pursue, and pay for, their respective versions of the American Dream. The first way is to have the cash to pay for everything outright. The second way is to qualify for loans and other financing options based on your credit score.
The Fair Isaac Corporation calculates a cumulative, three-digit number based on your credit history as reported by three major credit bureaus. The three major credit bureaus are Experian, TransUnion and Equifax. The three-digit number is called your FICO score. Not every current or prior creditor reports to all three bureaus. Therefore your FICO score for each bureau might be different.
FICO scores range from 300 to 850. Good credit scores range from 670 to 739. Excellent credit scores range from 740 to 850. Consumers with a FICO score below 580 are most often subject to automatically rejected credit applications. Consumers with FICO scores ranging from 580 to 669 usually require other supportive mitigating factors in order to qualify for most credit. Why is your FICO score so important? Ninety+ percent of all credit approvals/rejections are heavily influenced by the FICO score of each applicant. The higher your FICO score, the more likely you are to be approved for the credit you seek.
How Do I Improve My Credit Score Fast?
Fortunately, there are numerous credible and effective ways to improve your credit score. Some of these ways involve common-sense solutions. Others are perhaps less expected. One major reason FICO scores sink is late payments on bills or other reported debts. Paying your bills on time begins to increase your FICO score. What are some of the other ways to improve your credit score fast?
Dispute Erroneous Reporting of Debts
Creditors and credit bureaus are both capable of making mistakes. It is your right to dispute any charges you neither authorized nor made. This includes transactions made as a result of identity theft or medical bills your health insurance company was liable to pay but did not. Removing mistakes from your credit report is an effective way to quickly boost your FICO score. It is also an important step toward improving your financial situation and creditworthiness.
Change the Way You Use Your Credit
Thirty percent of what makes up your FICO score is the way you use your credit, or your credit utilization. A simple way of thinking about this factor is by comparing how much credit you have available to how much you are actually using each month. The closer your accounts are to being maxed out, the lower your FICO score will be. Diversify your spending by dividing up your payments from different accounts. Avoid charging large purchases when possible and instead use your credit cards for regular budgeted monthly expenses such as groceries and utility bills. Pay off all charges in full each month. For larger purchases where this is not possible, pay more than the minimum payment each month to reduce the debt faster.
Make Bi-Monthly Payments
Making bi-monthly payments increases the chance of your creditors reporting your debts while showing a lower balance. For example, perhaps you use a credit card to pay your electric bill, car loan and buy groceries on the 1st of each month. You then hypothetically pay your credit card bill on the 16th of each month. If the credit card company reports your account activity to the credit bureaus on the 15th of each month, however, it will appear your debt is high each month without being paid down. Making bi-monthly payments presents a more accurate picture of your debt ratio, credit utilization and payment history. This in turn raises your credit score.
Prioritize Paying Down Your Revolving Debt
Revolving credit accounts allow for new debt to occur each month provided the debt stays within applicable credit limits. Installment loans are fixed payment auto loans, mortgages, home improvement loans and more. Revolving debt is seen as having more risk due to its ability to be reused. Budget so you are able to pay off your revolving debt accounts with higher interest rates/balances first, while still simultaneously paying down installment debts as you go.
How to Keep Your Improved Credit Score
The best way to maintain a high, respectable credit score once you improve it is to keep a regular watch over your transactions and reported credit history. Use AnnualCreditReport.com to receive a free credit report each year. Sign up for mobile or email alerts on all open accounts so you know when any transaction is made. Finally, stick to your budget as close as possible each month and make all your payments on time.