Improve Credit Score
Your Credit Score is nothing more than a three-digit number used by lenders and banks to decide whether or not to give you a credit opportunity.
The important thing is that this number tells them on average what is the probability that you can and will or will not meet the payment obligation that you will now have with them.
The detail is that this number, mainly in the United States, becomes a determining factor for your financial life.
Put another way the higher your Credit Score, the more likely you are to qualify for loans on favorable terms which will end up saving you up to 8% in interest at the time of acquiring credit.
This may not be a very high percentage, but when you take out a $50000 loan to buy a home, 8% is $4000 you’re saving just because you’re reliable.
However, due to the lack of financial education and the low vertical mobility in the economic/social spectrum, it is quite likely that at this time your credit score is not exactly perfect.
But don’t worry there are many ways to improve your credit score quickly and that’s what this article is all about.
Can I improve my credit score quickly?
While there are some tools to rebuild your credit score quickly, they won’t offer you too drastic improvements if you already have a negative track record.
So, if your track record isn’t bad in a couple of months you can get a decent credit score by simply eliminating your debts and establishing an emergency fund and a proper cash flow.
However, the effects of negative behaviors such as late payments or even bankruptcy, are quite difficult to get out of your record. So your only option in those cases is to pay your debts and start behaving properly financially and let time pass.
Anyway, we are going to tell you that most of the elements that affect your credit will only remain for a certain time within the calculation:
- Hard inquiries have a two-year life in your report.
- Public Records has a life of 7 years but the most negative as bankruptcy takes 10 years to get out of your system.
- On the other hand, the criminal acts remain in your Score for a total of 7 years.
If you’ve made a mistake that will cause you to have any of these items in your history, the only Ally you have is time.
Know the numbers
According to Sun Tzu in the art of war, the first thing you must do to establish a strategy is to know your enemy.
In this case, we are going to fight against your low credit score, so you must know how this number is calculated.
The first thing you should know is that there are many ways to calculate it, and normally the information will be taken by the lenders from one of your three main credit reports. However, the FICO score is probably the most common and can range from 300 to 850 points.
But what is taken into account when calculating this number?
Usually, when calculating your credit score the algorithms will take into account how you have interacted with the economy in the following aspects:
- Credit History and Credit Cards
- How much credit you normally use
- How many bank accounts you have open
- What type of bank accounts you use
- How often you use your credit or apply for new credit
- What is your active balance
- What is your cash flow
The credit score also considers how long it takes you to make the appropriate payments for your credit and whether you pay the minimum amounts or make better-established payments.
As you can see, the general way in which you behave when doing any transaction with a bank ends up being part of your three-digit number, and it will affect your future possibilities of acquiring credit for a business, a vehicle, a property or even an emergency.
Based on this I think it’s time to ask ourselves the following question:
How can I improve my Credit Score?
From this point on we are going to give you a series of tips for what to improve your credit score quickly:
Pay your bills on time
This may be probably the most obvious piece of advice you’ll ever receive, but it’s also the first factor affecting your Score credit.
As long as you keep paying all your debts on time and comply with closing them in a prudent time, the algorithms will positively take your behavior as a debtor.
On the other hand, this has a trick. Usually, the algorithm punishes the people who pay the credits at once, to avoid cheating by asking for credits to liquidate them with assets.
In this section, your bills for services are also added.
Your financial behavior is not limited only to loans or interactions you have with banks or financial institutions.
How you pay your debts with any public or private entity is going to be part of your Credit Score, this includes the payment of your telephone bill, cable, university fees, condominium, and any other service you have to pay monthly.
Learn to liquidate and use your debt
Unless you’re going to apply for credit immediately, it’s important to reduce your debt promptly.
It is also imperative that you take into account how you use your credit.
There is a concept that experts call Credit utilization ratio, which is the amount of credit you should use based on the credit you have available.
Let’s put it simply.
If you add all your credit cards and loans available in banks you can get into debt for a total of $20000, it is recommended that you use only 20% which would be $4000.
To get a more accurate idea of what your credit utilization ratio is, take a look at your credit cards over the last 12 months and average the balances.
The result will be the USD credit you’ve been using in the last few months, and when you compare it to the total credit available on all cards you’ll get the percentage result.
Usually, the algorithms that define your credit score give a weight of up to 30% to your credit utilization ratio, so you must take actions that positively affect this number.
We advise you the following:
- Liquid as much as possible in your large debts.
- Keep your credit card balances as low as possible.
- Ask for increases to your credit card limits whenever you can.
- Don’t incur debts or credit accounts you don’t need.
Having credit accounts you don’t need can negatively affect your Score credit as you are usually tempted to spend more and accumulate debt.
Keep unused credit cards active
Some people recommend eliminating credit cards you don’t plan to use, but keeping the cards active is a good idea as long as you don’t charge an annual maintenance fee.
The reason for this advice is simple the more credit you have available, the broader your Credit utilization ratio, so by eliminating a credit card you lose part of your maximum credit, and the ratio, therefore, becomes less USD.
Check your credit reports frequently
There are three credit reporting bureau, Equifax, TransUnion, and Experian. You must evaluate the reports they offer you from time to time and verify that all the detailed information is correct.
It is also important that you open a dispute in case there is any error or anomaly regarding the information so that it can be corrected immediately.
Don’t apply for more than one credit at a time
Okay, while your credit cards help make it easier to maintain a Credit utilization ratio at an adequate percentage, loans negatively affect your Credit score by creating what is known as a hard inquiry.
These applications, rejected or not, will stay on your record for 2 years, and the possibility of being rejected if you already have another open credit is quite high.
Therefore, improving your Credit Score quickly is not necessarily impossible but it is necessary to take into consideration your behavior and financial habits so that you can make better decisions and attitudes that increase your three digits.
In some cases you will need more time to recover and clear your history, however, if so far you have not entered any negative elements to your Score, it is advisable to simply establish patterns of behavior.
So let’s close this blog with a few final tips:
- Establish fixed payment patterns so that you never fall behind in paying your bills or debts.
- Make sure you don’t open two credit accounts at the same time.
- Use your credit cards only when necessary or you can make an immediate payment so that it does not affect your credit utilization ratio.
Finally, we recommend you to gradually build up an emergency fund.
This will have a double function: firstly, it will support you so that you don’t have to depend on your available credit, and secondly, it will work to improve your cash flow when calculating your financial status.