A subscriber to Bankrate.com recently posted this. It’s probably because she or he applied for some form of credit and were turned down because they had such a low credit score. Unfortunately, as the Bankrate advisor pointed out there’s really no way to quickly boost your credit score. Here’s why…
How your credit score is calculated
As this article revealed, your credit score has five components. Two of these are how well you’ve handled credit and how much credit you’ve utilized vs. your limits. The first part, how well you’ve handled credit, makes up 35% of your score. The second, credit utilization, makes up 30% of your score. As you can see from this, how you’ve used credit actually makes up 65% of your credit score.
Get your report
If you’ve discovered you have a poor credit score, it’s because of something in your credit report. You need to get your reports, which you can get free (once a year) from the three credit bureaus – Experian, Equifax and TransUnion. Or you can get all three simultaneously at the site www.annualcreditreport.com. When you get your reports, you need to review them and look especially for items that could have negatively impacted your credit score. This includes defaults, judgments, late payments and accounts that have been written off. If you find some of these in your credit report be sure to double check to make sure they’re legitimate. The credit bureaus process thousands of items weekly and mistakes can be made. If you find one or more that are inaccurate, you can dispute them, have them removed from your credit report and possibly see a nice increase in your score.
Pay off past-due accounts
If you find any past-dues in your credit report that have not yet been charged off, you should pay them. This will bring those accounts current. They will start to generate positive data in your credit report again. However, spoiler alert, those late pays will still be in your credit report. However, they should soon be outweighed by positive data.
Collection or charged-off accounts
If you have accounts that have gone into collection or been charged off, you should pay any balances that are due. This will not make a significant improvement immediately in your credit score. This is because any company where you apply for new credit will want to see that you did pay off what you owed even if you were late.
Improving credit utilization
As noted above credit utilization makes up 30% of your credit score. This is based on your debt-to-credit ratio, which is the percentage of credit you’ve used versus the amount you have available. As an example of this, if you have a total credit limit of $10,000 and had used $4000 of it, your debt-to-credit ratio would be 40%. You can improve that ratio by paying off some of that debt. You might also think about opening some new credit accounts of various types. The reason for this is because another component of your credit score is “diversity of credit” or how many different kinds of credit you have. For example, you could improve your credit profile by getting an auto loan, personal loan or an installment loan for new furniture.
Won’t happen in a hurry
As you can see, it’s very difficult to boost your credit score quickly. You could help by paying down your balances, by opening some new types of credit and by eliminating errors in your credit report. Beyond this, you need to make all of your payments on time, try not to carry any balances forward and don’t let any of your accounts go to collection or get written off. If you do these things, you will eventually have a good credit score but it will be eventually.
Click here to read the Bankrate.com article