Equifax, one of the major credit reporting bureaus, reveals that the average credit score in the United States is approximately 698, a decent score that grants access to various forms of credit like mortgages, credit cards, and personal loans.
However, if your credit score is below average, it can be challenging to access financial tools or secure credit with competitive interest rates. Fortunately, your credit score is not permanent, and there are seven potential ways to positively impact it:
- Request Higher Credit Limits (But Avoid Utilizing Them)
If you already possess revolving credit accounts, such as credit cards, you can consider asking for a higher credit limit. If you maintain a good relationship with your credit card company, they may be willing to raise your limit.
How does this benefit your credit score? Your credit utilization, which refers to the amount of credit you are using, significantly influences your credit score. This factor is particularly relevant to revolving credit.
For instance, suppose your credit card has a $1,000 limit and a $500 balance. In that case, your credit utilization rate is 50%. According to the Consumer Financial Protection Bureau, keeping your credit utilization at or below 30% demonstrates responsible credit management, potentially enhancing your credit score.
One way to decrease your credit utilization rate is by increasing your credit limit. If your credit card company agrees to double your limit, your utilization rate drops to 25%.
However, it is crucial to avoid accumulating additional debt. Therefore, remember to consistently pay down your cards to maintain a positive impact on your credit score.
- Rapidly Reduce the Balances on Your Revolving Credit
Conversely, if you are unable to obtain a higher credit limit, you should consider paying off a portion of your balance.
In the previous example with a $1,000 credit limit and a $500 balance, you only need to pay $200 to achieve the desired 30% utilization rate mentioned by the CFPB. Generally, the lower your credit card debt, the better it is for your credit score.
- Open an Installment Loan if You Only Have Revolving Credit
According to the Federal Deposit Insurance Corporation (FDIC), approximately 10% of your credit score is influenced by your credit mix. This refers to having a combination of installment accounts (e.g., loans) and revolving credit (e.g., credit cards).
If you lack any installment accounts on your credit history, opening one could potentially boost your score in the future. Installment accounts include personal, auto, mortgage, or personal loans. For quick credit improvement, a short-term personal loan might be a suitable type of installment loan to consider.
- Ensure Timely Payments for All Your Debts
The FDIC emphasizes that payment history accounts for roughly 35% of your credit score. Creditors who report to credit bureaus take note of your payment history, including whether you made payments on time or were late, and the extent of the delay.
Late payments have a negative impact on your credit score, with the severity increasing the longer the delay. By consistently making all your payments on time, you can build a strong credit profile, leading to an improved credit score.
- Rectify Incorrect Negative Information on Your Credit Reports
Credit reporting errors are not uncommon, as indicated by a Federal Trade Commission study revealing that around 20% of Americans with a credit report have at least one mistake on theirs.
These errors can range from typos in personal information or account data to inaccurately reported late payments or balances. To review your credit report, you can obtain a free copy from AnnualCreditReport.com.
Thoroughly examine your reports from all three major credit bureaus: TransUnion, Equifax, and Experian. If you identify any errors, you have the right to dispute them. The credit bureaus are obligated to investigate the disputed information, and if the reporting agency (usually the creditor) fails to provide documentation to support the information, the bureau must remove or modify it.
The investigation process typically takes between 30 and 45 days to yield results. Correcting a negative item on your account can lead to a swift improvement in your credit score.
- Become an Authorized User on Someone Else’s Credit Card Account
Leveraging the positive credit of someone you trust can be an effective method to quickly enhance your credit. Here’s how it works: Request a friend or family member to add you as an authorized user on their credit card account.
Being an authorized user grants you permission to make charges on your account using a card provided to you. However, your loved one doesn’t have to give you the physical card or permission to make charges for you to benefit from this arrangement.
If the credit card company reports payment activity to the credit files of authorized users, you will benefit from your loved one’s timely payments. It is crucial to choose someone who consistently makes on-time payments and maintains a low credit utilization. Failing to do so could have a negative impact on your credit.
- Include Other Payment Types in Your Credit History
Adding yourself to someone else’s credit accounts or opening new lines of credit are not the only methods for quickly improving your credit score. You can explore the option of having other types of payments reported on your credit history, such as utility, phone, or streaming service accounts.
Services like Experian Boost allow you to include these accounts as trade lines, similar to loans or credit cards. By paying your bills on time, you can benefit from a positive payment history reflected in your credit report. However, it’s essential to ensure that all your payments are made promptly, as late payments could have the opposite effect.
Build Credit with a Loan from Wise Loan
If you wish to establish an installment loan in your credit history to strengthen your credit, consider applying for a loan with Wise Loan. Approval does not require good credit, and Wise Loan reports to all three credit bureaus. Additionally, they offer other tools to assist you in building your credit for the future.
The recommendations contained in this article are designed for informational purposes only. Essential Lending DBA Wise Loan does not guarantee the accuracy of the information provided in this article; is not responsible for any errors, omissions, or misrepresentations; and is not responsible for the consequences of any decisions or actions taken as a result of the information provided above.
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