This monthly series by personal finance specialist Amanda Reaume focuses on how to improve something that many people overlook: your credit score. These posts will give you tips and tricks to improve your chances of getting approved for better rates when you apply for credit – leading to better student loans, car loans and even mortgages.
There are a lot of reasons why someone might want to improve their credit score quickly. Perhaps you're applying for a mortgage and you fear that you won't be able to qualify or get a good rate. Or maybe you're applying for a job or looking to rent an apartment that requires a credit check and you're afraid that you might lose out if your score is too low.
Having a low credit score can definitely throw a wrench in life’s plans. And the best way to build it up again is to make good credit choices over months and even years.
This is generally a long process, so if your low credit score is stopping you from an opportunity right now, here are four things you can do to improve your score quickly.
Correct false records
If you're looking to improve your credit score quickly, the first thing you should do is get a copy of your credit report. People often find mistakes in their credit reports that had a negative impact on their scores. Perhaps your credit card company reported that you were late on a payment that you actually paid on time, or maybe there's a note on your file that you did not repay a loan that you paid off years ago.
If you find false information on your report, it’s a good idea to check in with another credit bureau and confirm if they have accurate information (Equifax and TransUnion keep separate records). Either way, you have the right to dispute the items in question. Send a letter to the credit bureau including copies of any documentation that supports your claim that the record is wrong. You may also want to include a copy of your credit report with the inaccurate entries highlighted.
Send your letter via registered mail so you can prove when they received your claim. The credit reporting bureau will then have 30 days to investigate your claim and decide whether your dispute is justified. If it is, they will remove the record from your report and your score will go up.
Write a letter to remove an entry
If you were ever delinquent with any of your credit accounts or if one of your accounts went into collections, that could have had a significant impact on your score. If there are a few entries on your credit report that are skewing the results, you can ask for them to be removed.
Write to the creditor and ask them to remove the record. If you still haven’t paid the debt, in the letter, you can offer to pay the debt in full in exchange for having the negative record removed from your account. Though, if you’re unable pay the debt in full, or if you have already paid the debt, then you can write a letter asking the creditor to delete the record out of goodwill. While companies are not obligated to agree to this, they may comply if you have a compelling reason as to why you were unable to pay your debt before.
Ask for a credit limit increase
One thing that affects your credit score is your credit utilization percentage. That means the percentage of credit you use out of the total credit available to you. For an optimal credit score, your credit utilization should be between 20% and 30% (if your credit limit is $1000, you should not be using more than $200 – $300 on that account). If you're using more of your available credit, this could impact your credit score negatively. By asking for more credit on your credit card, you can shift your utilization percentage and potentially increase your score.
Call your card company and ask if you have been pre-approved for an increase. A pre-approval means that they won’t have to run a credit check in order to increase your limit. However, if you haven’t been pre-approved, increasing your limit may not be beneficial to you because adding another credit check to your record could also impact your score negatively.
Best tip: Become an authorized user
One of the fastest ways to boost your credit score is by becoming an authorized user of a credit card that belongs to someone with good credit. Credit history is a huge factor that’s considered when calculating your score. If you have an extensive history of responsible credit choices, your score should be in good shape.
When you become the authorized user on a credit card that a family member or friend has faithfully paid for a long time, that card is added to your credit report and you will subsequently get a boost from their good credit history.
Talk about reaping the benefits from someone else’s good deeds!
If all else fails, you’ll have to wait
Unfortunately, there are not many ways to boost your score in a short amount of time. The best way to improve your score is to use credit responsibly, but this takes a while to build up.
If you currently have credit cards and loans, it's important to pay them off on time and ensure your credit utilization is low. You should also try to diversify your credit by getting different types of credit accounts.
If you don't currently have credit cards or loans because you can’t qualify for them, then you should consider getting a secured credit card. This type of card requires you to put down a deposit in the amount of the credit limit you’ll be approved for. After six months to a year of responsible usage, you can ask the issuer if they would be willing to upgrade you to a normal credit card, which will help you continue to build your credit.
To check out the last post from the How to Improve Your Credit Score series, click here.