How to Fix Your Credit Quickly!
Carlyle Capital has outlined ten ways to improve your credit report and increase your score…
A credit score is a numeric summary of your credit history ranging from 300 (poor) to 850 (excellent). This score is routinely used by lenders and other service providers to analyze whether or not you will repay any loans they make to you. Higher scores typically represent consistent on-time payments, low credit use and long credit history. Lower scores represent someone who may be a risk due to late payments, delinquency, or a negative debt-to-income ratio.
From a lender’s standpoint, a score of 760 and above is viewed as ideal and a score 650 or below is seen as problematic.
Whether you need insurance, a mortgage, a loan, or a credit card; many institutions utilize the credit report to determine whether they view you as a safe candidate.
The easiest way to improve your credit score is to pay down debt. There are two methods that financial advisors recommend as the most effective and efficient ways to drive down debt: the snowball method and the avalanche method.
The snowball method is when you pay down the smallest balance first while simultaneously making the minimum payment on all of your other accounts. Once the smallest balance is paid off, take the money you were putting toward that payment and roll it into the next smallest debt owed. As you roll the money used for the smallest balance to the next on your list, the amount snowballs and gets larger and larger and the rate of debt that is reduced is accelerated.
In contrast, the avalanche method focuses on paying the loan with the highest interest rate first. Similar to the snowball method, when the higher interest debt is paid off, you put the money toward the account with the next highest interest rate. By focusing on the loans that are the most expensive to carry, you should pay less interest over time.
Typically, the avalanche method may end up saving you some money in the long run, but it could be discouraging as it will take longer to see some of your balances finally hit $0. In contrast, the snowball method may lead to quicker wins to help keep you motivated to reach your goals.
Unfortunately, there is no magic wand that fixes your credit score right away- but there are actions you can take to increase your score and appear more attractive to lenders. We have outlined the most important below:
Check your credit report. You can get an annual credit report for free at annualcreditreort.com. Take advantage of this and look for possible errors in your report that could be resolved. Make note of the negative aspects of the reports and work towards improving those areas (for example: paying down debt on your credit cards or paying bills on time). If you identify inquiries on your credit report that you didn’t authorize, work to have those inquiries removed, and that can potentially help boost your credit score.
Pay your bills on time. It is human nature to forget a payment or miss a due date occasionally. A great way to avoid this is to set up automatic payments through your bank. Additionally, most service providers offer the option to opt-in to get email or text alerts when an upcoming bill is due.
Pay off any collections. Paying off a collection will increase your score; but be aware that the record of a debt having gone into collection will stay on your credit report for seven years.
Get caught up on past-due bills. A missed payment can lower your score by as much as 100 points. It is crucial to pay past-due bills as soon as possible to avoid this. It may take some time for this negative factor on your report to go away, however; credit score usually depends more on your most recent activity than on past credit problems.
Keep balances low on your credit cards. The ideal balance for a credit card is at or below 10 percent of the credit line. A balance close to or over the limit will lower your score and raise eyebrows to potential lenders. This will help lower your debt-to-income ratio as well.
Pay off debt rather than continually transferring it. While a balance transfer to pay zero interest or a lower interest rate on your debt can be more effective and efficient in paying down the total, be sure that you are chipping away at the balance and not just continually transferring it. According to FICO, paying down your overall debt is one of the most effective ways to boost your score.
Don't close paid-off accounts. It is common to think that once you have paid off a credit card the best thing to do is close the account so that you are not tempted to use the available balance in the future. However, unused credit card accounts reduces your available credit and can lower your credit score. Keeping them open and low-balance shows you can manage credit wisely. And think twice before closing older credit card accounts, because a long credit history also improves your score.
Shop for new credit over a short time period. If you are applying for a mortgage, a car loan or a credit card, lenders typically pull your credit report to analyze you as a borrower and determine what rate you qualify for. Too many inquiries over time can negatively impact your score, but if you cluster these applications within a few weeks of each other, the FICO scoring system will recognize that you are comparing rates for a single new loan or credit card rather than attempting to open multiple new lines of credit.
Have a mix of credit types. FICO prefers to see consumers with both installment loans and credit cards . If you are repaying student loans, a car loan, or a mortgage, then having one or two credit cards is a good addition. Having at least one credit card shows you can handle credit appropriately, but as mentioned above, be careful not to open too many credit cards either. If you only have credit card debt on your report, a personal loan may be a good option to add a mix of credit, make more on-time payments, and pay down the balances on your credit card(s).
Apply for new credit sparingly. Only apply for new credit when you actually need it and not simply to boost your available credit. Opening several new credit accounts in a short time frame can lower your score.
If you are in need a more immediate boost to your credit score, there is an innovative feature offered by Experian (one of the credit reporting agencies) that can help you raise your FICO® Scores instantly - Experian Boost™. This program utilizes information about your payment history on recurring bills (like your phone, utilities, and even your Netflix account) and rewards you for making on-time payments. The process takes just minutes and if qualifying payments are identified, this may reflect positively on your Experian credit file.
