Key takeaways
- Consistency and discipline are crucial for improving your credit score quickly and effectively.
- Utilize tools like secured credit cards, credit-builder loans, and rent reporting services to enhance your credit profile.
- Always pay your bills on time, maintain a low credit utilization ratio, and keep old accounts open to ensure continuous improvement.
Your credit score affects so much of your financial life. The terms of your mortgage, financing your car, or even if you’re approved for the apartment you want. So much is impacted by your score. When you have bad credit, it can be difficult to get good interest rates and terms, so you end up paying more than you should. It’s not fair.
While it can be tough to improve your credit rating, it’s not impossible. There are actually ways to boost your score fast with a little effort and discipline. And the good news is, the lower your credit score, the more dramatic the results.
Here’s how you can turn bad credit into good credit in as little as 60 days and keep it that way.
What Determines Your Credit Score
Understanding what determines your credit score is the first step in effectively managing and improving it. Your credit score is calculated based on several key factors:
- Payment History (35%): This is the most significant factor. Timely payments on your credit accounts, including loans and credit cards, positively impact your score. Late payments, defaults, and bankruptcies negatively affect it.
- Credit Utilization (30%): This is the ratio of your current credit card balances to your credit limits. Keeping this ratio below 30% is ideal for a healthy score.
- Length of Credit History (15%): The longer your credit history, the better. This includes the age of your oldest account, the age of your newest account, and the average age of all your accounts.
- Credit Mix (10%): A diverse range of credit types, such as credit cards, mortgages, and installment loans, can positively influence your score.
- New Credit (10%): Opening several new credit accounts in a short period can be considered risky and may temporarily lower your score.
By understanding these factors, you can take strategic actions to enhance your credit score over time.
10 Steps to Improve Your Score
1. Check Your Credit Report
Check your credit report to find out what you’re doing wrong. You are entitled to a free credit report from each of the three major credit bureaus—Experian, Equifax, and TransUnion—once a year through AnnualCreditReport.com.
Reviewing your credit report allows you to identify any errors or inaccuracies that could be negatively affecting your score. Disputing these errors with the credit bureaus can lead to corrections and an immediate boost to your score.
Thoroughly checking your report also helps you detect signs of identity theft or fraud early, enabling you to take swift action to mitigate any damage.
Understanding what’s in your credit report also provides insight into the factors influencing your score. See if you have a lot late or missed payments or if your utilization rate is too high. Spotting negative marks on your report lets you know what you need to change about your behavior.
2. Pay Off Your Debt
Paying off your debt should be at the top of your list. Tackle your debt using either the avalanche method, where you pay high-interest debt first, or the snowball method, where you pay the smallest debts first. It’s essential to find the method that works best for you.
If you need the motivation of quick wins, go with the snowball method. If you can be more disciplined and want to save money on interest, then the avalanche method is for you.
Whatever you do, try to pay more than the minimum required, as this will accelerate your progress and reduce the overall interest paid. By consistently chipping away at your debt, you not only improve your credit utilization ratio but also demonstrate responsible financial behavior, both of which can significantly boost your credit score.
3. Keep Your Credit Utilization Low
Credit utilization refers to the amount of available credit you are currently using and is the second biggest factor in calculating your credit score. To improve your credit, ensure you use less than 30% of your credit limit on any card; the lower, the better. High credit utilization can signal to lenders that you are over-reliant on credit, which can negatively impact your score.
To manage this, you can pay down your balances, ask for higher credit limits, or strategically spread your spending across multiple cards. As soon as your credit card reports a lower balance to the credit bureaus, you will see your score improve.
Regularly monitoring your credit utilization and making timely payments can help maintain this ratio, ultimately leading to a better credit score.
4. Don’t Close Old Accounts
One common mistake people make when trying to improve their credit score is closing old accounts. It sounds good but keeping your old credit accounts open can positively impact your credit score.
The length of your credit history accounts for a significant portion of your credit score, and older accounts help to extend this history. Maintaining old accounts can also lower your credit utilization ratio, as closing them reduces the total available credit you have.
Even if you’re not using an old card frequently, consider making small purchases and paying them off to keep the account active.
The exception is if the account comes with a lot of fees. Then it may be better to close the account, save money, and take the hit to your score.
5. Ask for a Higher Credit Limit
New
Requesting a higher credit limit on your existing credit cards can significantly improve your credit score by lowering your credit utilization ratio. When your credit limit increases but your balance remains the same, your utilization decreases, which positively impacts your score.
To do this, contact your credit card issuer and inquire about a limit increase. Be prepared to explain your reasons for needing a higher limit, such as your commitment to improving your credit score and your responsible credit habits. It’s also helpful to highlight any positive changes in your financial situation, such as increased income or reduced debt.
A higher credit limit not only helps your credit utilization but also provides a buffer for emergencies, offering more flexibility in managing your finances. Regularly reviewing and requesting higher limits as your financial situation improves can be a strategic move to maintain and boost your score.
6. Become an Authorized User
Becoming an authorized user on a family member or friend’s credit card with a good credit history can be a quick way to boost your credit score. When added as an authorized user, their account appears on your credit reports, and you benefit from their positive payment history and higher credit limit. This can significantly improve your credit score without you needing to use the card.
However, it’s important to choose someone who manages their credit responsibly, as any negative actions on their part, such as missed payments or high balances, can also affect your credit score. Ensure clear communication and mutual understanding about the arrangement to avoid any potential issues.
7. Add to Your Credit Mix
Credit scoring models take into account the variety of credit types in your profile, which is known as your credit mix. Having a diverse range of credit accounts, such as credit cards and installment loans, can positively impact your score.
To improve your credit mix, consider taking out a small loan you can afford or applying for a new credit card. These financial products can help diversify your credit portfolio and demonstrate your ability to manage different types of credit responsibly.
Be careful, though, and don’t take on debt you can’t afford.
8. Apply for a Secured Credit Card
Applying for a secured credit card can be a powerful step towards improving your credit score. Secured credit cards require a security deposit, which typically serves as your credit limit. This reduces the risk for the lender and makes it easier for individuals with poor credit to get approved.
Using a secured credit card responsibly—by making small purchases and paying off the balance in full each month—helps build a positive payment history, which is crucial for boosting your credit score.
Many secured credit cards report to all three major credit bureaus, ensuring that your responsible behavior is recognized. Additionally, some secured credit cards may offer a pathway to upgrade to an unsecured card after demonstrating good credit habits over time.
By using a secured credit card wisely, you can gradually build your credit, demonstrate to lenders that you can manage borrowing responsibly, and pave the way for better financial opportunities in the future.
9. Take Out a Credit Builder Loan
Credit builder loans are another credit building tool. Unlike traditional loans, a credit builder loan is designed specifically to help individuals establish or rebuild their credit. When you take out a credit builder loan, the borrowed amount is held in a secure savings account – you don’t get the cash right away. Instead, you make regular monthly payments towards the loan. These payments are reported to the credit bureaus, helping to build a positive payment history. Once the loan is fully paid off, you receive the funds minus any interest or fees.
This process not only helps you establish a track record of on-time payments but also demonstrates your ability to manage installment credit responsibly. Plus, you’re forced to build up savings.
Credit builder loans are often available from community banks, credit unions, and online lenders. By making consistent, timely payments, you can significantly improve your credit score.
10. Get Credit for Rent and Utility Payments
Your on-time rent and utility payments can instantly boost your credit score, but you need to take the right steps to set it up. Find a company that reports rent and utility payments to all three credit bureaus – Experian, Equifax, and TransUnion. Plenty of companies also report subscriptions, phone bills, streaming services, and more. You then get credit for bills you’re already paying on time.
Setting up these services is straightforward, and the benefits can be substantial. By demonstrating a consistent record of on-time payments, you show lenders that you are reliable and financially responsible.
What Makes a Good Credit Score
A good credit score is considered to be 670 or higher on the FICO score range or 661 and higher on the VantageScore model. Both models range from 300 to 850. Scores in the good range indicate to lenders that you are a reliable borrower who is likely to repay loans on time. This, in turn, increases your chances of securing loans and credit with favorable terms.
Bottom Line
Improving your credit score takes time, patience, and discipline. While significant progress can be made in as little as 60 days, achieving an excellent credit score may take longer.
It’s essential to stay committed to your financial goals and maintain consistent efforts in managing your credit responsibly. Regularly monitor your credit score, pay your bills on time, keep your credit utilization low, and avoid closing old accounts unnecessarily. By adhering to these practices, you’ll gradually see improvement in your credit score.
Over time, your hard work will pay off, opening up access to better financial opportunities, such as lower interest rates, higher credit limits, and more favorable loan terms. Remember, a good credit score is a valuable asset that can lead to a brighter financial future and greater financial stability. Stay focused, be patient, and continue to make smart financial decisions.
