How Long Does It Take To Improve Your Credit Score? 8 Ways To Drive Up Your Number
- November 4, 2020
- 7 min read
- 1154 reads
When was the last time you checked your credit score? Often people don’t understand how their credit score is calculated or how long it takes to improve your credit score. We at Financer.com have comprised a detailed breakdown along with 8 ways to improve your score.
A credit score is a statistical number calculated from a range of factors based on someone’s credit history. The number is an evaluation to determine how trustworthy a person is at paying off their debts.
Credit scores range between 300 and 850. The higher the number, the more financially dependable that individual is.
FICO or Fair Issac credit scores are what 90% of American businesses use to calculate and qualify to lend.
Scores below 620 are considered suboptimal, and above 670 is deemed to be good. If an individual has a credit score of 800, that is regarded as excellent, and their creditworthiness is optimal.
When you apply for credit, your FICO score is taken into account by the lender along with other key factors such as income, length of employment, and the type of loan requested. Your creditworthiness is to determine how likely you are to repay your debt.
5 Factors Of Credit Scores
1. Payment History – 35%
Payment history is taking into consideration. How long an account has been open for, and how regularly it has been paid will affect the calculation. If there are any adverse delinquencies such as bankruptcy or liens, they will stay on a credit report for seven years.
2. Debts Owed – 30%
The debts owed factor is 30% of the calculation. It takes into consideration how many debts are owed and to what value each debt is comprised of. It also takes into account a credit utilization ratio, which refers to how much credit is available to a person compared to how much credit they have used.
If an individual has $20,000 available to them through credit cards and small loans, but have only spent $8,000 worth of that credit that would indicate low utilization and therefore improve their creditworthiness.
3. Credit History - 15%
Holding a credit account or loan for an extended time will improve a credit score. Mortgages and long term credit cards (that are not maxed out) improve a person's credit score. As the longer an individual is paying it off on time. This proves to lenders that they are reliable borrows.
4. Credit Mix – 10%
This seems like an odd factor for consideration; however, 10% of a FICO credit score is based on the diversification of borrowing. Having a mortgage, auto loan, personal loan, and a credit card can contribute to a higher credit score.
Debt consolidation can sometimes drop a credit score temporarily. But keeping a mix of longer-term loans such as mortgages and not maxed out credit cards will raise a person's credit score over time.
5. New Credit – 10%
If a credit score report shows multiple new credit inquiries, a lender will consider that person a high-risk borrower. The calculation is based on how many new inquires there are and how many accounts have been open.
Opening up multiple new accounts in a short period will reduce a credit score. It is considered an indication that an individual is not managing their money correctly and will not be as reliable to repay their debt.
How To Check Your FICO Credit Score For Free
FICO credit scores are used by 90% of American businesses to evaluate the creditworthiness of a person. There are many ways to check your FICO credit score without damaging your credit. Regularly checking is an excellent way to keep on top of making decisions that will improve your score over time.
The discover credit score card only conducts a soft inquiry that will not affect your credit score. They update their online scores every 30 days, and checking will not cost a thing.
If you are an American Express credit card holder checking your FICO credit score is eas. You will find your score through your online account. It is updated regularly and completely complimentary as part of the American Express service.
All three of these banks offer free FICO credit score checking through your online banking service. Each one is updated regularly, and checking will not affect your credit score.
How To Improve A Credit Score
Many articles will give the best tips to improve a person's credit score, and the formula is pretty simple on paper but a little harder in reality. It takes some self-disciple and new habits. But it is worth it in the long run. When applying for finance for investments or property, having good credit is imperative. Which of the following actions will improve your credit score? Apply all 8 and you will see your number rise in no time at all.
8 Ways To Improve Your Credit Score
1. Pay Your Bills On Time
Paying your bills on time is a massive factor in improving your credit score. Even paying one day late can do significant damage if done on more than one occasion.
2. Setup Automatic Payments
Set up an automatic payment as soon as the invoice becomes available. That way there is no chance of missing a payment later in the month when you have forgotten about it. If there is concern about having enough funds in the account each month, there are many actionable ways to gain financial peace.
Open a separate bills account that is not connected to your debit card. Every paycheck transfer enough money to cover regular bills such as utilities, car loans, and mortgages.
For bills that you cannot auto pay set reminders in your phone to pay one day as soon as the invoice becomes available. These little tricks will improve your score over time.
3. Review Your Report
Review your credit report and look for errors that may have occurred. Contact the credit report agency and dispute any mistakes. This can help repair bad credit fast.
4. Don't Apply For New Credit
Every time an application is put through for new credit, the lender conducts a hard inquiry. Even if the new account is not accepted, it will appear on your credit report for up to two years.
5. Contact Creditors
Contact your creditors if there is a chance that you are going to fall behind on payments. Ask to set up a payment schedule that you can stick to. This will save your credit score in the long run as long as you make the new agreed payments on time.
6. Reduce Credit Utilization Ratio
If you have multiple credit cards, pay down your most maxed out cards first. This will reduce your utilization ratio and improve your credit score.
7. Pay Off Newest Debts First
If you have acquired multiple debts of small amounts, make a list of newest to oldest debts. Pay off the latest debts first. This will keep your long term credit history thriving and, in turn, improve your credit score.
- Financer.com can help you pay off credit card debt fast.
8. Debt Consolidation
Merging debts into one larger payment is not always the answer for short term credit score improvements; however, in the long run, it can pay off. If you can cover all their debt payments monthly, a consolidation loan may be the answer to reducing debt load quickly. This will improve credit utilization, along with saving money on high-interest credit card payments.
Does paying off collections improve your credit score? Yes, paying off collections will help your credit score over time. If you have outstanding debts, a consolidation loan may help improve your credit score by limiting the chance of your small debts going to collections.
Having only one repayment to focus on can help knock down your debt quickly. It can also save you money if you find a consolidation loan with a lower interest rate than what you currently pay now.
How long does it take to improve a credit score?
Increases in credit scores take time. To see any significant difference, it may take three to six months of positive credit behavior.
If you already have a good credit score, then maintaining it is essential to future funding. It is hard to rebuild credit, and delinquencies will stay on a credit report for up to seven years.
At Financer.com we value your feedback. Leave a comment below on ways you have improved your credit score.