How to Improve Your Credit Score Quickly and Effectively
In the post-pandemic age, millions of people are struggling with a low credit score, resulting in wider-ranging consequences than most are aware of. Thus, learning how to improve your credit score quickly and effectively has become a hot topic in the market for people looking to get better terms and lower interest rates on homes, cars, machinery, and other loan products.
However, before you can improve your credit report, you need to understand the circumstances that led to the low score. In this post, we’ll share the major causes of a poor credit score, the key benefits of having a good score, and five ways to improve your score quickly.
Major Causes of a Poor Credit Score
1. Late Payments
Around 35% of your credit score is based on your payment history accounts. Therefore, if you habitually delay monthly payments, your creditor might report you to the bureau. If you continue the practice long enough, you could forfeit your chances of getting approved for a loan.
2. Loan Defaults
Defaulting on a previous car, home, or another loan is one of the worst financial mistakes anyone can make, as it leaves a huge stain on their credit report. It usually occurs when you miss multiple consecutive payments, following which your account is marked as default.
Prospective lenders access your information when evaluating your future loan applications. They will see you as a credit risk if you cannot repay your previous loan and probably not approve a new one.
3. Collection Accounts
Many creditors use third parties to collect payments from borrowers, especially those delaying payments or on the verge of defaulting on their loans. When an account is sent to collection agencies, the information is included in the credit report. However, this information can be repaired if borrowers pay their debt.
4. Bankruptcy
Filing for bankruptcy is often the last lifeline for individuals or businesses who can’t pay their debts. Although this moves grants legal protection, the information is included in the credit report and stays there for seven years. Consequently, most lenders steer clear of borrowers facing bankruptcy or other legal issues.
5. Blacklisting through Charge-Offs
Finally, there are cases in which creditors give up trying to get their money back. When this happens, they charge off the borrower’s account and blacklist them from making purchases. Moreover, since the borrower still owes money, their credit score will drop significantly, and the charge-off information will remain on their account for seven years.
Key Benefits of Improving Your Credit Score
1. Better Insurance Rates
Insurance plans are a necessary investment for anyone looking to protect their assets, properties, and themselves from losses. In some cases, getting an insurance policy is required by law. For example, people are required by law to get car insurance to operate a vehicle. Other common insurance types include homeowners, health, and life.
Regardless of the type, your credit score can impact your monthly premium and even deny you the chance to get or renew a policy. Therefore, improving your credit score is a great way to reduce your recurring insurance payments while securing yourself from financial losses.
2. Lower Credit Card Interest
The first thing many card issuers look out for when assessing your application for a new or upgraded card is your credit score. They could reduce your annual percentage rate (APR) if you have a good or excellent score. Upgraded cards may also include other benefits, such as better rewards, discounts, or purchase protection.
3. Better Housing Options
One of the most important benefits of having a good credit score is better housing options, regardless of whether you want to buy or rent. For instance, landlords would be more willing to rent their properties to tenants with good credit scores. They perceive them to be more likely to pay rent on time.
Similarly, a healthy credit report could help improve your mortgage loan approval chances and decrease your interest rate.
4. Better Employment Chances
Many companies check applicants’ credit reports as part of the screening process or background check. In most cases, this may not affect their chances of securing a job, especially if their poor credit score is due to factors beyond their control, such as health bills, student loans, and long-time unemployment.
However, the key purpose of this check is to look for bankruptcies or a pattern of delayed payments on non-essential purchases. These often count as red flags.
Improve Your Credit Score Quickly With these 5 Tips
Now that you’re well-versed with the benefits of having a healthy credit report, here’s how to improve your credit score quickly and effectively:
1. Strategic Credit Utilization and Repayment
One of the best ways to improve your credit score quickly and effectively is by lowering your credit utilization. Most creditors recommend using less than 30% of your card limit. However, you don’t have to stop there, as the highest scores have utilization rates of as little as 7%.
By keeping your balance as low as possible, you can ensure payments don’t become overwhelming. Moreover, you can use this opportunity to pay your bills before the billing cycle ends. Some people like to pay their bills weekly to reach their balance goals.
2. Increased Credit Limit
Another way to reduce your credit utilization ratio is to ask your creditor to increase your limit while keeping your balance the same. Many people do this when their incomes increase to prepare themselves for bigger purchases strategically. There are two ways you can go about this.
The easiest way is to increase your current card’s limit. The second way is to cancel your card and get a new one with a higher limit (not recommended/total accounts is also a key factor but so is average age). More importantly, you’d want to keep your spending in control as studies show people with higher limits are tempted to spend more every month.
3. Frequent Credit Report Repairs
Another quick and effective way to improve your credit score is to review your credit report at least once every four months and check for any errors that could impact your score. This includes false charges, incorrect payment dates, unauthorized payments, etc.
You can have timely disputes removed and fix your score proactively. Many users claim to have found fraudulent users and duplicate accounts when reviewing their reports. Most credit bureaus, such as TransUnion, Equifax, and Experian, offer a free credit report, so you can check them by visiting Annual Credit Report.
4. Timely Bill Payments
No matter what you do, you can’t hope to improve your credit score if you make late payments. Moreover, if you make late payments consistently, they can stay on your report for years. One potentially effective way to minimize the damage is to ask your creditor to stop reporting missed payments to the bureaus.
It may be a long shot. However, the lender could consider your request if you don’t have a history of late payments. However, it would be best to have a monthly target for clearing your debt. This strategy can help you maximize your score in both FICO and VantageScore credit scoring systems.
Many users automate their bill payments so they can make their payments in case they forget or want to delay them. Of course, depending on your circumstances, this won’t always be possible. However, it’s all about consistency. The idea is to minimize late payments.
5. Rent and Utility Credit
Another smart way to improve your credit score quickly is to add some of your recurring payments onto your credit report. These payments include your rent and other utilities. Some creditors may not consider these records when assessing loan applications. Still, they could offset some of your late payments and make your report look much better than it should.
You can also include payments for streaming services, mobile devices, internet, phone bills, gas, trash, sewage, etc.
Wrapping Up
Millions of people are dealing with poor credit scores in the post-pandemic age. As a result, there’s a rapid influx of strategies and tips related to improving credit scores. However, everyone’s financial circumstances and expenses are different. Hence, there’s no one-size-fits-all solution to establishing a healthy credit report.
However, the tips and strategies above can work wonders for most consumers if they apply them correctly. Most issuers report payment behavior to the bureaus every 30 days. Therefore, making payments on time, reducing your utilization rate, and making proactive repairs can and will make a positive difference to your score.
So, feel free to try them out and see which option works best for you.
