Some people think the world is controlled by a secret group known as the Illuminati. We have another theory as to what could be controlling all of us—our credit.
That sounds dramatic, but it's true. If you have bad credit, you've probably already seen how it's impacting you. In fact, that's probably why you're here.
Figuring out how to fix your credit can be hard to pinpoint. Generally speaking, you need to build good financial habits and build up a history of these habits before it's reflected on your credit. And that takes time.
But if you're desperate for a quick credit fix, fear not. You can do some things to see an almost immediate boost in your score. And, as long as you continue to take these steps, your credit score can continue to rise.
We're here to spill all the details on the secret sauce that makes for good credit. Spoiler alert: a lot of it just has to do with being responsible with your bills and credit.
Why credit matters
Your credit report and credit score can open the door to many opportunities, including lower interest rates, more loan options, and credit cards with better reward programs. Not only that, but your credit can reach beyond your finances and impact other areas of your life. Some jobs require a credit check and won't hire candidates with poor credit. And a lot of property management groups also check rental applicants' credit scores and will choose people with better credit.
Credit's influence on people is stronger and more prevalent than many of us realize.
A quick credit score rundown
Before you start doing a deep dive into research on credit tips, it's good to get a general understanding of credit scores.
Your credit score is like a trustworthy rating assigned to you by one of three bureaus in charge of this seemingly arbitrary process. When you apply for new credit from lenders, they pull up this score and can quickly see how likely you are to pay them back. The higher your credit score, the more trustworthy you appear to be.
If you have a low score, lenders believe there's potential that you'll make payments late or miss them altogether. To offset that risk, they offer people with low credit scores higher interest rates, lower spending limits, and fewer loan options.
On the other hand, people with higher credit scores are rewarded with low interest rates, better loan terms or credit card offerings, and quick approvals for credit.
Doesn't it sound better to be in that second group?
Luckily, even if you have a low score right now, you can improve it. It'll be hard work, like a celebrity climbing from D-ist to A-list status. But it's doable.
Credit scores are generally given on a scale of 300-850. There are two major credit scoring models that lenders tend to pull credit scores from—FICO and VantageScore. If you're looking for a "good" credit score, you want to have at least 670 on the FICO model and 661 on the VantageScore model.
The 5 credit score factors
Your credit score is made up of five factors, all of which are weighted differently.
Payment history: 35%
Amounts owed: 30%
Credit history: 15%
Credit mix: 10%
New credit: 10%
Knowing these five factors can give you a better idea of what actions will positively or negatively impact your score.
How to fix your credit: 8 steps you can start today
Okay, enough small talk—let's get to the juicy stuff. You're here because you want a quick credit boost, and here's how you're going to get that:
1. Make all your payments on time (and in full)
This one shouldn't surprise you. You must pay your bills on time. And, whenever possible, you pay them in full.
Your payment history is the most significant factor for your credit score, accounting for 35%. Payment history is a record of all your payments to lenders.
Lenders can report even a single missed or late payment to the credit bureaus, and that information will be added to your report. These "black marks" will decrease your credit score.
And it gets worse. Negative items on your report, such as poor payment history, can stay on your credit report for up to seven years.
Help yourself make sure you never make another late payment again by signing up for autopayments wherever possible. Even if you can only make the minimum payment, do so before the due date. Although, paying the entire balance is better, of course.
Going from a poor payment history to a good one can significantly impact your credit score, and you might even see your score jump up a few points quickly.
So, no excuses. Get those auto-payments and reminders enabled, and never miss another payment again.
2. Lower your credit utilization ratio
The amount you owe is the second largest credit score factor. More specifically, you need to keep an eye on your credit utilization ratio. Credit utilization is the credit available to you every month versus the amount you spend.
Let's say you have three credit cards, each with a credit limit of $500. Every month you spend $450 across those three cards. That means your credit utilization ratio is $450 out of $1,500, which is 30%.
It's recommended you keep credit utilization at 30% or lower to avoid a negative impact on your credit score. Why? Those pesky credit card companies may give you access to a lot of credit, but they want to see that you don't actually rely on it.
Look at your credit card spending across the last 6 months and calculate your average credit utilization ratio. If it's sitting at 30% or higher, you'll want to get that down immediately. If you manage to, you'll see your credit score increase a few points.
There are two ways you can get your credit utilization down:
Decrease your spending.
Increase your credit limits.
You can request a credit limit increase on your card, but these requests only sometimes get approved and often take time.
The more straightforward method is to find ways to decrease your monthly spending. Try swapping out those daily Starbucks outings for making coffee at home instead.
3. Keep your oldest account open
Technically, this tip won't improve your credit score, but it will keep your score from falling.
The third largest credit score factor is your credit history. You know that first credit card you got when you were 18? The one that offers no rewards or benefits, so you quickly stopped using it? Well, if you haven't canceled that card yet, don't.
As long as the card isn't charging you an annual fee, it's in your best interest to keep it open. Your oldest credit account is extending your overall credit history timeline. When you close this account, your credit history gets adjusted to what is now your oldest active account.
So, even if you leave it hidden in your underwear drawer, keep your oldest credit card active.
Note that some cards get automatically canceled unless you use them within a time frame (usually one year). So, dust that card off and take it for a spin around your Amazon account at least once a year.
4. Review your credit report
As credit reports have such a wide-reaching impact on the everyday American, we should trust the organizations in charge to vet all the information in our accounts, right?
Hmmm, seems that's not really the case.
One 2021 survey found that approximately 34% of Americans have a mistake on their credit report. That is about one in three Americans.
Picture you and two of your friends. One of you likely has a mistake on that crucial report that dictates many of your financial interactions.
Some of these errors could be small, such as an incorrect address on file. But mistakes, like having an inaccurate payment history, could be pretty significant and even drag your credit score down.
The good news is, there's a quick, free solution to this.
All consumers are entitled to a free credit report every 12 months from each of the major credit bureaus (Experian, Equifax, and TransUnion). Order your reports today and carefully review them. If you find any errors, you can file a dispute with the credit bureau to have it removed from your account.
Try to make it a habit to review your credit reports once a year.
It might not be fun, but it's an important step. If you have a false negative item on your report, removing it could bump your credit score up by several points.
5. Handle any outstanding delinquencies
This step is a continuation of the one above. While you have your credit report handy, look to see if you have any outstanding delinquencies. This would look like unpaid accounts that have been written off and marked as "delinquent."
Having a delinquent account on your credit report can do a lot of damage to your score. If you have the funds available, reach out to the lender and ask if you can settle the account with them. Make sure you request that they remove the delinquency status from your credit report in exchange for payment.
And get that in writing because you can never be too careful.
6. Thin credit? Might be time to fatten up that credit report
Remember how we talked about your credit history being important? The reason is simple. The more credit data you have, the more likely a pattern can be established in your lending habits.
Individuals just starting with credit are usually 18-year-olds or people who heavily rely on using cash. These people have what is known as a "thin" credit report.
As you establish more of a credit history, it can help your credit score soar (assuming your credit history is full of good habits).
Unfortunately, this is a bit of a chicken and egg dilemma. You need help getting approved for new credit because your credit report is too thin, and your report is too thin because you need more credit.
Fortunately, you can thicken up that folder by requesting some alternative data be added to your report. You can use services like Experian Boost that will add payments that aren't typically included in your credit report to your account, such as rental, utility, and cell phone payments.
As long as you're responsible with these payments, you'll see your credit report get bulked up and your credit score improve in no time.
7. Consider using credit monitoring
After you've done all this hard work, you'll probably see your credit score increasingly improve.
Now you want to make sure your credit score stays high.
One way you can keep an eye on your score is through credit monitoring services. These are offered by the credit bureaus and will alert you any time there's a significant change in your credit report or score.
When you get the alert, you can act quickly to address the issue so your credit score doesn't keep plummeting.
This isn't necessary for everyone, but it can definitely bring peace of mind. And it's relatively affordable to do it. Equifax charges just $4.95 a month for credit monitoring.
We see a better credit score in your future
Now that you have a credit booster game plan, it's time to get moving. Working on your credit score may not be the most exciting thing you tackle this month, but the eventual reward is undeniable.
You'll feel like a new person when you get that lofty "good" or "excellent" credit score rating. And don't worry, if you feel lame bragging about your credit score to your friends, you can always brag to us. We love a credit score comeback story.
