Chances are you’ve seen a lot of “fix your credit score in a week” or “raise your credit score 100 points overnight” articles. This is because we always seek quick and easy solutions, but is a 100-point raise too good to be true?
Today we will determine whether or not this dramatic rise is possible by looking at what goes into a credit score and how you can improve yours.
Understanding Your Credit Score
Before you can get into how to raise your credit score, you need to understand how credit scores work. Luckily, with just a little bit of time and attention, you can figure out exactly what impacts your credit score and be better prepared to cultivate a good credit score for your future.
Here we will discuss what a good credit score is as well as how credit scores are calculated.
What Is a Good Credit Score?
So, what should you be aiming for in your credit score? Many people think that when they first start their credit journey, they start with a credit score of 0. This is not true.Credit scores start at 300, so if you are just beginning your credit history, your score will be 300. Credit scores range from 300 to 850, but what exactly does that mean for you?
Unfortunately, not all credit score breakdowns use the same numbering. For example, the FICO score range is as follows. A score of
- 300-579 is poor,
- 580-669 is fair,
- 670-739 is good,
- 740-799 is very good, and
- 800-850 is exceptional.
Alternatively, the VantageScore credit score ranges are as follows. A score of
- 300-549 is very poor,
- 550-649 is poor,
- 650-699 is fair,
- 700-749 is good, and
- 750-850 is excellent.
Ideally, you want your credit score to be in the “good” category or above. Unfortunately, because different scoring systems use different number cutoffs, ensuring you are in that “good” range can be challenging. The FICO and VantageScore ranges are both popular, so it may be worth keeping track of your score in both systems.
Why Is A Good Credit Score Important?
Now, you may be wondering, is a good credit score worth all the effort to maintain it? While we would love to say that having a good credit score is something you should worry about if you want to, it is one of those important things that we simply have to pay attention to as adults — like taxes or budgeting.
While most people do not enjoy paying taxes or budgeting for the month, they are things that we do because we have to. While having a good credit score is not strictly necessary, it can make many areas of your life much easier if you do.
A good credit score can help you qualify for and receive loans when needed, better cell phone and other utility contracts, housing (for example, an apartment requiring a certain credit score or a favorable mortgage plan), and lower interest rates.
How Is Credit Score Calculated?
As mentioned above, credit scores range between 300 and 850. A score of 300 will tell a credit company, lender, or other interested parties that you have very little credit history or have had trouble with your credit in the past.
But what exactly goes into this number? There are a few different fields that have an impact on your credit score. Unfortunately, different companies may categorize them slightly differently which makes it hard to follow at times, but in general, your credit score is determined by the following five factors.
Payment History
This factor determines 35% of your overall credit score, making it the most impactful factor on its own. This factor is determined by things like
- whether you make payments on time,
- how often you miss payments,
- how late payments are if you miss them (how many days past the due date you make payments),
- how recently you have missed payments, and
- how many accounts have made late payments.
In short, this factor tracks how good you are at making payments on time. The more on-time payments you make, the higher your score will end up. Conversely, each time you miss a payment, it will negatively impact your score.
Amounts Owed
The amounts owed by your credit accounts makes up another 30% of your overall credit score. This makes it the second most-impactful factor in determining your credit score. This factor includes criteria like
- the entire sum of funds you owe,
- how many accounts you have and their types, and
- how much you owe compared to your available credit (AKA credit utilization ratio).
A large number of high balances and maxed-out credit cards will lower your credit score. On the other hand, smaller balances (when paid off on time) may raise your score. Remember that new loans may also temporarily lower your score, but as you get closer to paying them off, they can raise your score in this section.Length of Credit History
The next highest determining factor of your credit score is how long you have been working on your credit score. As mentioned above, you begin your journey at 300 points, but the longer you spend making payments, the higher your score will get. The length of your credit history accounts for 15% of your overall score. Unfortunately, there isn’t anything you can do to increase this factor other than maintain your credit accounts over a long period.Credit Mix
Having a diverse selection of lines of credit or credit accounts is another important factor in your overall credit score. This accounts for 10% of your overall score and can be improved by having a mix of accounts.
Some types of good credit accounts to diversify your overall credit history are:
- home loans,
- installment loans, and
- credit and retail cards
Recent Credit Activity
Your recent credit activity determines the last 10% of your overall credit score. This covers any newly opened credit accounts or newly acquired loans. These may temporarily lower your credit score as they can be reflective of financial struggle. However, if you make timely payments on these newly opened accounts, your score will change to reflect this.
How Often Do Credit Scores Update?
Anyone working to improve their credit score may wonder how long new changes will take to be reflected in their credit score. Truthfully, how often your credit score updates will depend on your lenders updating your information. While this is typically variable, it generally happens every month.
How to Improve Your Credit Score
Now that you have learned all about what makes a credit score rise or lower, you may be wondering what you can do to improve your credit score. Luckily, because there are so many factors that affect your overall credit score, you raise your score in several ways.
So, without further ado, here are eight of the best tips you can use to raise your credit score.
Pay Your Bills On Time
Remember, payment history accounts for the largest portion (35%) of your overall credit score. Therefore, ensuring that you are paying your bills on time is one of the best ways to steadily increase your credit score — especially if you continue to pay off your cards on time over your entire credit history.
If you have trouble remembering when certain bills are due, you can set up automatic payments for recurring bills, like utilities and credit card payments. If automatic payments are not an option for you due to a lack of available funds or if a service you use does not allow them, you can also set reminders on your calendar when each bill is due so you ensure to pay them on time.
Ask for Late Payment Forgiveness
We realize that it is not always possible to ensure you pay everything off when it is due. This is especially true if you have a period of low income or an unexpected expense you cannot cover immediately. In these cases, it may be worth asking for forgiveness for the late payment.
If you have a good history of always making payments on time, and there was an unexpected cause or reason for the late payment, you can include this in a letter to the lender, company, or service that received the late payment. You will also want to include steps you have taken to ensure that you will not miss the payment in the future.
There is no guarantee that they will take this information into account. However, if you have a good relationship with them, they may forgive the delay and remove the late payment from your account, which can prevent the negative effects of a late payment on your credit score.
Keep an Eye on Your Credit Score and Reports
You will get a free credit report each month from your creditors. It is crucial that you keep an eye on this report so you know where you stand each month in terms of your credit score. You will also want to check over your report to ensure all the information is accurate, as incorrect information may negatively affect your score.
Keep in mind that there are different scoring schemes for credit scores, so you must understand which credit scoring system your creditors use. Noting thedifference between different credit scoring systemsis crucial to ensuring that you keep an eye on your actual credit score (calculated using the FICO or VantageScore models).
Dispute Any Inaccuracies
If you see a charge on one of the credit accounts that you did not make or an inaccuracy in the amount charged, dispute it. Maybe you notice an error in your credit report. No matter where you notice the error, you must take action to get it corrected before it can cause damage to your score.
Ensure to include any documents that support your claim in your report to your credit bureau as well as your name and contact information, and the bureau has 30 days to confirm or deny your claim. If they confirm the claim, they will remove the error from your report, and your credit score will increase without the incorrect information.
Keep Your Credit Card Balances Below 30%
Remember your credit utilization ratio? This is the primary determiner for your credit score’s “amounts owed” factor. If you remember, this factor determines 30% of your overall score. Therefore, keeping a low balance on your credit cards is an incredibly effective way to raise your overall credit score. A good rule of thumb is to keep your credit utilization ratio below 30% — easy to remember, right? 30% of your overall score; keep the ratio below 30%.
If you want to optimize your score, you’ll find that staying between 2% and 9% is the best range, but this is not realistic for everyone. So, just aim to stay under 30% of the limit on your accounts.
Pay Off Any Credit Card Debt
Credit accounts not paid off 30 days after the payment was due are labeled “delinquent” accounts and can harm your credit score. They negatively impact your credit score because they reflect not only on your payment history but also on your credit utilization ratio.
Luckily, if you pay your credit card account and other lines of credit off by their due dates, you can avoid these delinquent accounts and the negative impacts they bring to your credit score. However, if you have a delinquent account, pay it off as quickly as possible, as the longer it goes unpaid, the worse your credit score consequences may be.
Diversify Your Credit Accounts
Credit mix accounts for 10% of your overall score, and while this may not seem like a lot, it can impact your score more than you think. Applying for a new credit card if you do not have many, getting a credit limit increase, leaving old accounts open, and getting asecured credit cardcan all be good ways to diversify your credit accounts. Having just a single line of credit, while easier to track, does not do much for your credit score.
Become an Authorized User
Becoming an authorized user on someone else’s credit card can be a good way to speed up your credit-building journey. However, to ensure that this step will help, not hurt, your credit score, you’ll need to ensure that the individual whose credit card you are an authorized user on is good at paying their bills on time.
So, Can You Raise Your Credit Score 100 Points Overnight?
The truth is that there is no universal “quick fix” that can improve your credit score by 100 points overnight. Instead, building your credit score takes time, careful planning, and habit-building. But, if you start from a lower credit score, it may be possible to increase your score by quite a bit in a relatively short period if you begin building those critical habits.
If you implement the tips we discussed in this article, you can work towards improving your credit score dramatically, but realize that you may not see progress overnight.
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