Your credit score affects everything in your financial life, from credit applications and financing terms to interest rates and approvals. Whether you are in the market to finance a home or take out a new loan, a better credit score can help you access low-interest rates, high credit limits, and favorable repayment terms. On the other hand, lower credit scores can result in reduced loan amounts, higher interest rates, and even outright rejection of your application for financing. Fortunately, there are several ways to boost your credit score fast, so you can get the funding you need. To help you on your way to improving credit, we have compiled a comprehensive guide to improving your credit score.
What Is a Credit Score?
Your credit score is essentially a numeric representation of your creditworthiness. Lenders and financial institutions use your credit score as a means of determining whether you are likely to pay back a loan. It is derived from your payment history, the number and age of accounts you have open, and your current debts, among other factors. This information is compiled by credit bureaus, who then use specific calculations and algorithms to rank your fiscal reliability on a scale between 300 and 850. The lower the score, the less likely lenders will be to approve a loan with desirable terms. Therefore, it is essential to understand how your score is calculated, so you can make necessary adjustments to raise your credit score.
How Your Credit Score Is Calculated
The Fair Isaac Corporation (FICO) developed the original credit score method and is now widely accepted as the standard for credit scoring. Although there are other methods, such as VantageScore and Experian’s National Equivalency Score, lenders will most often refer to your FICO score to determine whether you are a safe investment.
When reviewing your financing application, your potential lender will obtain your credit report from a credit agency. Three credit reporting agencies handle the bulk of consumer reporting information and credit histories: Experian, Transunion, and Equifax. Each bureau collects information differently so that scores can vary depending on the agency; however, each of them calculates your score based on the same five factors:
- Payment history, including late payments
- Total current debt owed
- Length of your credit history
- Number of new accounts and lines of credit
- Types of credit you have obtained, such as credit cards, home loans, car loans, etc.
Your payment history will generally account for 35% of your credit score, while your current debt will count for 30%, and your credit history length for 15%. The number of new accounts you open and types of credit will account for 10% each in your credit score calculation. You can view the results of these calculations by obtaining a credit report to check your credit score.
How to Check Your Credit Score
It is a common misconception that accessing your credit report will cause your credit score to decrease. This is untrue. Unlike credit checks from potential lenders, checking your score will not register as an inquiry. The recommendation is that you check your credit score regularly to ensure your accounts are in good standing. Another good idea is to keep an eye on your score if you intend to apply for financing in the near future, so you can be aware of any adjustments that need to be made before applying.
Fortunately, there are numerous ways to obtain your credit score, including:
- Your credit card, bank, or financial institution. Many credit card companies, banks, and financial institutions offer free credit reporting through online account access or right on your statement.
- Free credit score sites. Some credit scoring services, such as Experian, will offer you free access to your FICO score along with educational resources to help you boost your credit score for free. There are other sites where you can obtain your credit report at no charge, but be sure to double-check the terms, as they may charge a monthly subscription fee for continued access to your report.
- Free annual credit report. Each major credit bureau can provide you with one free credit report each year. Visit www.annualcreditreport.com to get it.
- Buy from a credit bureau. You can also purchase your full credit report directly from FICO, Experian, Transunion, Equifax, and other credit reporting agencies.
- Nonprofit credit counseling. A credit counselor can obtain your credit report and help you find the best way to improve your credit score.
Checking your credit report helps you ensure that your credit score is where you want it to be and gives you the information you need to boost your score. A full report will also allow you to check for any inaccurate or incomplete information. If you believe your credit report has incorrect information, you can contact the creditor at the phone number provided. Or start a dispute with the reporting agency to have the information verified or removed.
What Is Considered a Good Credit Score?
When you are applying for a new line of credit, your credit score will play a deciding role in whether your application is accepted, the amount you can borrow, and the interest you will be expected to pay. Although creditors often use their thresholds for lending approvals, many organizations use the FICO standard, which is as follows:
- Excellent: 800 to 850
- Very Good: 740 to 799
- Good: 670 to 739
- Fair: 580 to 669
- Poor: 300 to 579
If your score is “Fair” or “Poor”, lenders may see you as a risky investment and offer less desirable terms, including higher interest rates, shorter repayment terms, or a co-signer. If your score is considered “Good”, lenders will be more likely to offer lower interest rates, higher loan amounts, and longer repayment terms. Generally, the higher your score, the better creditors will feel about your ability to repay the loan or line of credit.
What Can I Do To Improve My Credit Score?
If you are trying to open a new line of credit or obtain financing, you are probably looking for the fastest way to improve your credit score. Fortunately, we have several quick ways to boost your credit score:
- Pay your bills on time. The best way to boost your credit score is to make your payments on time. Since your payment history is one of your credit scores’ primary factors, this is essential if you want to improve your credit score.
- Keep your credit balances low and pay down your debts. Reducing your credit balances lets lenders know that you are not overextended. While having several open lines of credit is good, it is essential to keep the usage low. A great way to improve your score fast is to make significant payments against your current debts.
- Leave unused cards open and request higher credit limits. Keep your unused credit cards open and request higher credit limits on existing cards, but don’t use them. Low credit usage and high availability translate to a higher credit rating.
- Do not apply for too much credit at once. If you are trying to apply for a line of credit or loan, apply to as few creditors as possible. Too many recent requests on your report will reduce your score, as it may appear to lenders that you are experiencing financial difficulties.
- Check your credit report regularly. One of the best free ways to raise your credit score is to check your credit report, dispute inaccuracies, and ask creditors to remove negative entries from your report once they have been paid.
- Use Experian Boost. If you need to know how to improve your credit score fast, try Experian Boost, a unique service from a major credit bureau that will instantly raise your credit score. The only service of its kind, Experian Boost, allows users to get credit for on-time payments for utilities, telecommunications, and other bills that are not traditionally counted toward your credit score. The boost added by these payments is applied immediately and can improve whatever you need to apply for financing faster.
Although boosting your credit score may seem like a complicated process, there are a wide variety of useful tools available to help you monitor and improve your credit quickly and easily. With these tips and techniques, you can control your financial activity to reach your credit goals and access better financing terms and options for everything from credit cards to your next home.