If you're thinking about buying your first home or a new car but are worried your credit score will prevent you from making these purchases, we have three pro tips to help you boost your credit score quickly, which may help you qualify for a better rate on your mortgage or pay less for those dream wheels.
1. Make a big payment at the right time
Credit card companies generally report credit standing once a month, but there's no set date when this happens. Credit bureaus let lenders set their own schedules, so if you can sleuth out this information, you can use it to raise your credit score.
I started using a credit bureau's app on my iPhone last year and was pleasantly surprised to get pop-up alerts whenever a creditor reported my credit standing. You can also call your lender and ask when they report.
So how does knowing this date help your credit score? Let's say you have some extra money to whittle down your balance. Your lender reports to the credit bureaus around the fifth of the month. What you'd want to do is make sure you get this big payment to them at least five business days before their reporting date so the balance reported to the credit bureau reflects this large payment. Waiting until the fifth of the month — or later — means the credit bureau won't get your new, lower balance until the fifth of the following month and your credit score may not change (for the better) before then.
You'll also want make sure you don't add to your balance, so try not to use your card in the days before your lender reports balances. And, of course, make sure you make your minimum payment by the due date, not by the reporting date!
2. Get your credit limits raised
This tip you need to approach judiciously. If you're trying to raise your credit score quickly for an upcoming house purchase and you ask all of your credit card lenders to raise your credit limits, your score will take a hit from all the hard pulls on your credit. Not only will those hard pulls lower your credit score, prospective lenders might get nervous you're asking for a lot of credit all at once, especially right around the time you're asking them to lend to you.
However, if you won't be applying for a mortgage or auto loan for awhile, raising your credit limits is a neat trick to lower your total credit utilization rate, which figures into your credit score. Your utilization rate can make up to 30% of your credit score.
Let's say you have two credit cards, one with a $5,000 limit and the other with a $10,000 limit. You have a $2,500 balance on the first card, and a $4,000 balance on the other, and you've been plowing all your extra cash into paying both down, which is awesome. Go you!
But right now your credit utilization on the $5,000 card is 50% and on the other card, it's at 40%, and those rates are a little higher that you want (lower than 30% utilization is best). What you could do is call each lender and ask for a credit line increase, which would lower these utilization rates and give your credit score a quick and easy boost.
If the $5,000 card's limit was doubled to $10,000, that would put you at a 25% utilization rate, and if the limit on the $10,000 card was raised by $2,500, you'd be at 30% utilization.
If you use this strategy, it will only work if you keep paying off your balances and avoid adding any more debt to the cards. If a higher credit limit is an irresistible lure for you to spend, focus on continuing paying your cards down with the credit limits you already have in place. Your utilization rate will decrease more slowly, but that's okay, especially if you're not in a hurry to take on a mortgage or loan payment.
3. Correct errors on your credit report
The #1 complaint the Consumer Financial Protection Bureau receives from consumers each year isn't about aggressive debt collection practices or shady mortgage brokers, but errors on credit reports! And if you're going to be applying for a mortgage or car loan anyway, one of the first things you'll want to do is pull your credit report and look for mistakes on it...mistakes that could cost you big money.
If you haven't checked your credit report in awhile, you may be limping along with a lower credit score because of erroneous information on there. What might you spot? Common errors include:
- Identity errors, including name, address, and employer
- Accounts belonging to someone else with the same or similar name
- Accounts open through identity theft
- Accounts reported delinquent or charged off
- Incorrect balances and/or credit limits
- Incorrect information that was reinserted into the report after it was reported as fixed
Luckily, it's fairly easy to get a copy of your report, and while correcting errors may take a couple hours of your time, it's a fairly straightforward process.
First, you are entitled by law to get a free copy of your credit report from each of three national credit reporting companies (Equifax, Experian, and TransUnion) once every 12 months. All you have to do is visit annualcreditreport.com to order your copies. This is the site authorized by federal law to provide these free reports, so don't be fooled by lookalike sites which may try to charge you a fee. Your reports will not include your credit score.
You can also stop by a branch of Hanscom FCU and get a free credit report and score review with one of our trained specialists. Learn more here.
Once you've reviewed your reports and found errors, it's time to correct them. Contact each of the credit reporting companies:
The three credit reporting companies all allow you to file disputes online, and the sites give you options for filing disputes by mail if you prefer to go that route. You'll need to explain why you think the information is erroneous and include any proof for your claim. The reporting company will then contact the lender with the dispute and investigate. If the information on your report proves to be incorrect, it will be removed and you will be entitled to receive a fresh copy of your credit report for free. (The credit bureau will also inform the two other credit bureaus of the error.) The removal of damaging and incorrect information on your credit reports should nudge your credit score upwards.
A lot of blogs, vlogs, and consumer-oriented websites tell readers to dispute everything, including negative information that's accurate. But the credit reporting companies are wise to frivolous requests like these, so just stick to the facts. If you do have negative but accurate information on your report, time will heal it, often faster than you think as long as you pay your creditors on time and pay your balances down.
As long as you continue to handle your credit responsibly, these three tips can help boost your credit score to one you can be proud of.
Others are reading:
- 3 Good Reasons to Consider a Higher Interest Credit Card
- 5 Surprising Things I Learned About My Credit Report
- 5 Surprising Ways You Can Hurt Your Credit
- Credit Know-how: The Difference Between a Soft and a Hard Inquiry
- The 4 Sections of Your Credit Report