Business,  Finance

How to fix credit score

Your credit score—a three-digit number lenders use to help them decide how likely it is they’ll be repaid on time if they grant you a credit card or loan—is an important factor in your financial life. The higher your scores, the more likely you are to qualify for loans and credit cards at the most favorable terms, which will save you money. If your credit history is not where you want it to be, you’re not alone. Improving your credit scores takes time, but the sooner you address the issues that might be dragging them down, the faster your credit scores will go up. You can increase your scores by taking several steps, like establishing a track record of paying bills on time, paying down debt. How Credit Scores Are Calculated You likely have dozens, if not hundreds, of credit scores. That’s because a credit score is calculated by applying a mathematical algorithm to the information in one of your three credit reports, and there is no one uniform algorithm employed by all lenders or other financial companies to compute the scores. (Some credit scoring models are very common, like the FICO® Score* , which ranges from 300 to 850.) You don’t have to get hung up on having multiple scores, though, because the factors that make your scores go up or down in different scoring models are usually similar. “What makes one score go up versus down is always going to be the same—it just depends on the degree,” says Barry Paperno, a consumer credit expert. Most scoring models take into account your payment history on loans and credit cards, how much revolving credit you regularly use, how long you’ve had accounts open, the types of accounts you have and how often you apply for new credit.How to Raise Your Credit Score Fast

  • Find Out When Your Issuer Reports Payment History
  • Pay Down Debt Strategically
  • Pay Twice a Month
  • Raise Your Credit Limits
  • Mix It Up

How long will it take to increase your credit score? It won’t happen instantly, but if you follow the steps in this article your credit score will begin to go up within a couple of months. Let’s get started…

  1. Find Out When Your Issuer Reports Payment History

Call your credit card issuer and ask when your balance gets reported to the credit bureaus. That day is often the closing date (or the last day of the billing cycle) on your account. Note that this is different from the “due date” on your statement.There’s something called a “credit utilization ratio.” This is the amount of credit you’ve used compared to the amount of credit you have available. You have a ratio for your overall credit card use as well as for each credit card. It’s best to have a ratio — overall and on individual cards — of less than 30%. But here’s an insider tip: To boost your score even quicker, keep your credit utilization ratio under 10%. Here’s an example of how the utilization ratio is calculated: Let’s say you have two credit cards. Card A has a $6,000 credit limit and a $2,500 balance. Card B has a $10,000 limit and you have a $1,000 balance on it. This is your utilization ratio per card: Card A = 42% (2,500/6,000 = .416, or 42%), which is too high. Card B = 10% (1,000/10,000 = .100, or 10%), which is awesome. This is your overall credit utilization ratio: 22% (3,500/16,000 = 0.218), which is very good. But here’s the problem. Even if you pay your balance off every month (and you should), if your payment is received after the reporting date, your reported balance could be high — and that negatively impacts your score because your ratio appears inflated. So, pay your bill just before the closing date. That way, your reported balance will be low or even zero. The FICO method will then use the lower balance to calculate your score. This lowers your utilization ratio and boosts your score.

  1. Pay Down Debt Strategically
    Okay, let’s build on what you just learned about utilization ratios.In the above example, you have balances on more than one card. Note that Card A has a 42% ratio, which is high, and Card B has a wonderfully low 10% ratio. Since the FICO score also looks at each card’s ratio, you can bump up your score by paying down the card with the higher balance. In the example above, pay down the balance on Card A to about $1,500 and your new ratio for Card A is 25% (1,500/6,000 = .25). Much better!

3. Pay Twice a Month
Let’s say you’ve had a rough couple of months with your finances. Maybe you needed to rebuild your deck (raising my hand) or get a new fridge. If you put big items on a credit card to get the rewards, it can temporarily throw your utilization ratio (and your credit score) out of whack. You know that call you made to get the closing date? Make a payment two weeks before the closing date and then make another payment just before the closing date. This, of course, assumes you have the money to pay off your big expense by the end of the month.By the way, don’t use a credit card for a big bill if you plan to carry a balance. The compound interest will create an ugly pile of debt pretty quickly. Credit cards should never be used as a long-term loan unless you have a card with a zero percent introductory APR on purchases. Even then, you have to be mindful of the balance on the card and make sure you can pay the bill off before the intro period ends.

4. Raise Your Credit Limits
Now, if you tend to have problems with overspending, don’t try this. The goal is to raise your credit limit on one or more cards so that your utilization ratio goes down. But, again, this only works out in your favor if you don’t feel compelled to use the newly available credit. I also don’t recommend trying this if you have missed payments with the issuer or have a downward-trending score. The issuer could see your request for a credit limit increase as a sign that you’re about to have a financial crisis and need the extra credit. I’ve actually seen this result in a decrease in credit limits. So, be sure your situation looks stable before you ask for an increase. That said, as long as you’ve been a great customer and your score is reasonably healthy, this is a good strategy to try. All you have to do is call your credit card company and ask for an increase to your credit limit. Have an amount in mind before you call. Make that amount a little higher than what you want in case they feel the need to negotiate. Remember the example in #1? Card A has a $6,000 limit and you have a $2,500 balance on it. That’s a 42% utilization ratio (2,500/6,000 = .416, or 42%). If your limit goes up to $8,500, then your new ratio is a more pleasing 29% (2,500/8,500 = .294, or 29%). The higher the limit, the lower your ratio will be and this helps your score.

5. Mix It Up
A few years back, I realized I didn’t have much of a mix of credit. I have credit cards with low utilization ratios and a mortgage, but I hadn’t paid off an installment loan for a couple of decades. I wanted to raise my score a nudge, so I decided to get a car loan at a very low rate. I spent a year paying it off just to get a mix in my credit. At first, my score went down a little, but after about six months, my score started increasing. Your credit mix is only 10% of your FICO score, but sometimes that little bit can bump you up from good credit to excellent credit. Now, I wasn’t planning on applying for credit within the next six months, so my approach was fine. But if you’re refinancing your mortgage (or planning similarly something big) and you want a quick boost, don’t use this strategy. This is a good one for a long-term approach. Bottom Line When you want to boost your credit score, there are two basic rules you have to follow: First, keep your credit card balances low.Second, pay your bills on time (and in full). Do these two things and then toss in one or more of the sneaky ways above to give your score a kickstart. And remember — you do not have to carry a balance to build a good score. If you do that, you’re on a slippery slope to debt.