How to Raise Your Credit Score Quickly
How to Raise Your Credit Score Quickly
So much rides on a good credit score, from your auto loan rates to
where you live. The difference between an acceptable credit score and a
good credit score is huge and can save you thousands of dollars in the
life of an auto loan or mortgage. Before you apply for a loan, it is
wise to check your current credit score and try to reach the next level
of credit before submitting your loan application.
Setting Realistic Expectations
You can raise your credit score quickly, but expect it to take one to
two months to take effect. This might seem like a long time to wait
when you are in the middle of looking for a vehicle or personal loan,
but waiting just a little bit longer will save you a lot of money. A
better credit score means a better loan rate, which then means less
interest paid in the life of a loan.
For example, if an excellent credit score secures you a $160,000 30-year mortgage for a 3.9% annual percentage rate (APR)
then you would end up paying $89,000 in interest. However, if your
credit score was slightly under 740, you might end up paying 4.2% APR.
The rate difference looks minimal, but it will add up to $8,000 more in
interest charges over the next 30 years. It is worth the time and effort
to boost your score before securing a loan.
Check for Errors
The easiest way to raise your credit score is to dispute any errors
on your credit report. You want to make sure the credit bureau did not
make any mistakes or accidentally mix up your report with someone with a
similar name. (For more, read:10 Steps to Help Erase Errors On Your Credit Report.)
Pay Off Debt
Paying off debt
benefits your financial situation in many different ways. When you pay
off debt, you give your credit score a boost, and you also lower your debt-to-income ratio,
which makes you a more appealing candidate for loans. Note, it is best
to pay off credit card debts rather than pay off long-standing loans and
mortgages where you have established a good standing.
Become an Authorized User
The best way to raise your credit score quickly is to use a credit
card. However, if you are younger or do not have an established line of
credit, then you might be turned down for several credit cards. Instead,
ask a trusted family member if you can be added as an authorized user
on their account. You do not even necessarily need to use the card to
improve your credit score. Just make sure you are not becoming an
authorized user to someone that has mediocre credit or many late
payments since that will make your score worse.
Open a New Card and Use Your Current Card
If you currently have a credit card, use it wisely. You want to spend
about 10% of your credit limit and pay it off monthly to help boost
your score. Opening a new credit card will also raise your score
slightly. If you currently have bad credit, consider a secured credit
card that is specifically made for those with bad credit. Many secured
credit cards frequently report to the credit bureaus and send you
monthly credit score updates, so that you can keep track of your
improvement. (For more information, see How Your Credit Card Can Improve Your Credit Score.)
Ask for a Raise
Ask you current credit card company for a credit limit raise. Even if you do not plan to use it, this will help credit utilization ratio.
This is a smart move only for those who exercise good financial habits.
If you increase your credit limit and your credit spending, then you
will not boost your credit score and can also wind up in more debt. (For
more, read What Is A Good Credit Utilization Ratio?)
Don’t Close Out Your Credit Cards
Don’t close out a credit card, even if you don’t want to use it
anymore. Closing a credit card will lower your credit score. It doesn’t
matter if you always paid it on time and did not have a balance. If you
desire to close a card due to annual fees, try calling the credit card
company and ask them for a downgrade to one of their free cards. This
allows you to maintain a longer history with the company, which is
important for a healthy credit score. (See also: 4 Habits That Damage Your Credit Score.)
The Bottom Line
Improving your credit score quickly is possible, but you have to be
intentional about your credit card usage and debt repayment. The credit
bureaus will raise an individual’s score based off of good habits, such
as paying bills on time, having a manageable amount of debt, and not
spending more than 35% of your line of credit. If you have filed for bankruptcy or went into foreclosure, understand that it will take you much longer to improve your credit score.
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