How to improve your credit score by 100 points, is the question that I am often asked? There are many ways to do this with today's technology.
First off, if you’re ready to make a large purchase like a car or a home, then you’ll need to know your credit score. Your credit score will determine if you get approved for a loan and what type of interest rates you are eligible for. It may also be required when applying for a job or an apartment, so it’s important to know what you’re working with.
What’s the point of knowing your credit score if you don’t know how to improve it? You can know the number on the report all day long, but if you don’t understand the number or how it was derived, then you won’t be able to improve it.
Improving your credit is more than just making monthly payments on time. There are many steps to improving your credit, and some take just a few minutes. We’ll help you get on the right track and stay on the right track with these strategies to help you improve your credit.
Before You Get Started
You’ll need to get your credit report to know exactly where you stand. Your credit score will only tell you the number, but your credit report will break down all of your account information and utilization that goes into making up the number, so you’ll need to obtain a copy of your credit report.
You can get a free credit report each year from the three major credit bureaus: TransUnion, Experian, and Equifax. We recommend getting a report from each credit bureau so you know what information each credit bureau has.
Tip #1: Look at Old Credit Cards
How often: Every month
Time to spend: Up to 30 minutes
Old credit card accounts impact your credit score because creditors look at your credit card age and your credit utilization ratio, two significant factors contributing to your overall credit score. We recommend keeping old credit card accounts open so that your credit age continues to grow.
If you have paid off an old credit card and you are afraid the creditor may close the account due to non-activity, we recommend using the credit card for one autopay bill each month. Then you should set your bank account to automatically make a payment to that credit card account for the same amount.
This action will keep the account active and paid off every month, which will help improve your credit.
Tip #2: Make Timely Payments to Improve Your Credit Rating
How often: Every month
Time to spend: Up to 30 minutes
Whether you’re catching up on late payments or attempting to stay on track with current payments, make sure you plan to make your payments on time. Each month, creditors report to the credit bureaus when you make your payment, which is an important factor in your overall credit history. If you make your payments on time, you will have a good credit history; however, making just one late payment can cause a significant hit to your credit score.
Things to Remember About Payment History When Improving Credit Scores
Late payments, missed payments, collection accounts, and any other negative item can stay on your credit report for seven years. Even if you have made the account current or paid off a collection account, the negative item will remain on your credit report.
You can write a pay for delete letter or a goodwill letter to your creditor to attempt to remove the negative item from your credit report. We’ll have more on pay for delete letters a little bit later.
Tip #3: Set Up Reminders or Autopayments
How often: one time
Time to spend: set-up time up to 30 minutes
You’ll never miss a payment again when you set up reminders or autopay for your credit card accounts. There are a few different options you can choose to make sure you maintain a good credit history.
- Set up a payment reminder. Payment reminders are a great way to stay on top of your accounts and never miss a payment. You can set up payment reminders on your phone and email. You can opt-in to receive a text message and/or an email to remind you of the upcoming payment.
- Set your account up for autopay. If you’re worried that a payment reminder may still fail you, you can set your account up for autopay. We recommend setting up autopay if you have a steady income each month. For example, if you get paid by direct deposit on the 15th and 30th of each month, you can set up autopay for your credit card account immediately after your payday.
- Set up micropayments. Micropayments are a great way to plan to pay your minimum balance each month without having to make the full payment at once. Micropayments will split up the monthly payment into four smaller payments that you can make each week. If you would rather make two micropayments a month, you can split the monthly payment in half and pay one half one week and the other half another week. Just make sure the minimum balance is paid in full by the due date.
Tip #4: Enroll in Non-Credit Programs to Build Credit
How often: One time
Time to spend: 30 minutes
Have you ever wished that your utility or Cell Phone Company would report your good payment history to the credit bureaus? There are now programs that you can enroll in that will do just that. This is a great way to get a quick boost and improve your credit score in 30 days.
There is also a program called UltraFICO that works similarly to Experian Boost. Simply connect it to your bank account, and you can get credit for things like the consistent cash you have on hand and the frequency of your bank transactions.
These non-credit programs can take your bank history and factor them into your overall credit score, potentially improving your credit by a few points each month.
Tip #5: Refrain From Opening New Accounts
If you already have several open credit card accounts, you shouldn’t open a new account.
Opening a new account requires a hard inquiry into your credit report. A hard inquiry is when a creditor or lender checks your credit to determine your approval chances for the loan or credit card that you are applying for. A hard inquiry can affect your credit score for the first 12 months after the hard inquiry has occurred, and it will remain on your credit report for two total years.
Lenders or creditors look at the number of hard inquiries on your account to determine how much of a risk you may be to approve for the loan or credit card, especially if many hard inquiries have occurred in a short period.
The other reason you should refrain from opening new accounts is credit age. Credit age is the age of your overall credit history. Your overall credit age makes up for approximately 15% of your credit score. Opening a new account lowers your overall credit age, which can lower your credit score. An exception to this rule would be if you did not have many accounts in the first place.
Tip #6: Take Care of Collection Accounts
How often: One time or as needed
Time to spend: 15 to 30 minutes per account
When you fail to make a payment for more than 90 days, creditors will send your account to a collection agency. The collection agency will attempt to collect the debt and will receive a percentage of the settlement payment in the process.
Collection accounts are one of the most significant hits that your credit score can take. When lenders and creditors see a credit report with accounts that have gone to collections, they will be less likely to approve you for a loan or credit card.
Try to take care of collection accounts as soon as possible. As we mentioned in tip #2, collection accounts and other negative items can stay on your credit report for up to seven years, even after you have paid them in full.
We recommend writing a pay for delete letter when you negotiate to settle a debt with a creditor. A pay for delete letter is a negotiation strategy you can use to settle a debt in exchange for the creditor removing the negative item from your credit report.
Tip #7: Dispute Errors and Inaccuracies to Boost Credit
How often: Immediately after receiving your credit report
Time to spend: 15 to 30 minutes per account; 30 to 45 days per dispute
As soon as you receive your credit report, you need to review it for any errors or inaccuracies. Around 20% of people will find an error on their credit report each year. Inaccuracies or errors may be a simple data entry mistake made by the lender or creditor, or they may be for more serious reasons like identity theft or fraud.
How to Dispute an Error on Your Credit Report to Improve Credit
- Obtain a copy of your credit report from all three credit bureaus. Experian, TransUnion, and Equifax are required to provide you with a free credit report each year.
- File a report online or in writing. You can file a report online or by mail with the credit bureau that has reported the error.
- Wait 30 to 45 days. The credit bureau will investigate the dispute within 30 or 45 days, depending on the credit bureau. After the 30 or 45-day investigation, the credit bureau will provide you with their findings.
If the credit bureau agrees with your dispute, they will update the information on your credit report, and your credit score may change the next month.
If the credit bureau can validate that the error is not inaccurate, then the information will remain on your credit report, and your credit score will also remain the same.
Tip #8: Lower Your Credit Utilization Rate to Improve Your Credit Scores
How often: Every month
Time to spend: Ongoing
Another way to improve your credit is your utilization rate is a ratio that measures how much you owe on all credit card accounts to your total available credit on all accounts. When you run up high balances on your credit cards, it increases your credit utilization rate. Your credit utilization rate is the second most impactful aspect that credit bureaus consider when calculating your credit score.
Creditors and lenders prefer to see a credit utilization rate of 30% or less. When they see a credit utilization rate on your credit report of more than 30%, it is a red flag that you may not manage your debt the best way and that you may be a risk to give a loan or credit card account to.
There are a couple of different routes you can take when lowering your credit utilization rate.
- Request to raise your credit limit. When you raise your credit limit on one or all of your accounts, your credit utilization rate decreases. If you have a good payment history with your creditor and you have not maxed out the credit account, they will likely honor your request to raise your credit limit.
- Request to change your due dates. If your credit card bills all fall around the same time and you are struggling with making each monthly payment on time, you can request your creditor to change the payment due date of the account.
- Pay off one credit card. If you have the funds to pay off at least one credit card, you should do it immediately. Paying off your credit card decreases the total balance you owe, which will also decrease your credit utilization rate.
Tip #9: Consolidate Debts to Improve Your Credit
How often: One-time setup
Time to spend: Depends on how many accounts you will be consolidating
Debt consolidation is a great way to repair all of your credit card debts at one time. With debt consolidation, you combine all of your credit card debt into one new loan or account with one monthly payment.
There are often many different debt consolidation methods you can choose from:
- Personal loans
- 0% balance transfer fee credit cards
- Home equity loan
- Retirement loan
Remember that combining all of your credit cards into one new account will result in one new monthly payment, so it’s important to shop around to decide which method gives you the best rate and the best option for you.
How Your Credit Score is Calculated
Credit bureaus look at five specific areas of your credit history to calculate your credit score. Each area makes up a certain percentage of your credit score, so it’s important to understand these areas and how to improve them if you want to improve your overall credit.
- Payment History (35%): Your payment history makes up 35% of your credit score, so it’s important to always make timely, minimum (or more) payments each month to each credit card or loan account you have.
- Credit Utilization Rate (30%): As we mentioned in tip #8, your credit utilization rate makes up 30% of your credit score, and it is the second most important factor that credit bureaus look at when determining your credit score. Lowering your credit utilization rate to below 30% will help increase your credit score.
- Credit Age (15%): The age of your credit history makes up 15% of your credit score. Creditors look at your credit age to get a better understanding of the type of borrower you are. If you have a relatively young credit history, your credit score won’t be as high as it would be with an older credit history.
- Inquiries and New Accounts (10%): Each time you apply to open a new credit card or loan, your credit score will be hit with a hard inquiry. There are two types of hard inquiries that creditors will look at: hard inquiries for credit cards and hard inquiries for a home or car loan.
- Hard inquiries for credit cards that are excessive and made in a short period will negatively impact your credit score and likely cause the creditor or lender to deny you for the loan or credit card account, as this implies that you are a risky borrower.
- Hard inquiries for a car or home loan are less likely to impact your credit score because creditors understand that borrowers shop around for the best rate and term limits when making a big purchase.
- Types of Credit Accounts (10%): The last factor that credit bureaus use to calculate your credit score is the types of credit accounts you have. A credit portfolio with a combination of different types of accounts tells lenders that you are responsible to manage different credit accounts. Lenders will be more likely to approve you for a loan or credit account when they see a variety of properly managed credit accounts on your credit report.
One credit card account can play a role in all of these credit scoring areas, and taking action on one account can impact more than one area of your score. For example, if you add a new credit account, you decrease your credit utilization rate, but you also add a hard inquiry to your account and lower your overall credit age.
What Bills Help Improve Your Credit Score?
How can you improve your credit through a focus on bills? Credit cards and loans (personal, home, or car) are the two major bills that affect your credit score. These bills will help your credit score if you pay them on time each month. They also can hurt your credit score if you miss a payment or let them go into collections, so pay all credit card and loan accounts on time.
Credit bureaus understand that sometimes your credit score doesn’t show the whole picture. That’s why they have come up with programs you can enroll in to help increase your credit score when credit card accounts or personal loans aren’t enough.
Experian has come up with a program called Experian Boost that you can enroll in for free. When you enroll in Experian Boost, you will connect the service to your bank account and begin to get credit for monthly bills like your phone, utilities, and even many popular streaming services.
UltraFICO is a similar program that will boost your credit score when you make monthly payments on things like utilities and your cell phone. UltraFICO also looks at your bank account activity to review your spending habits and your average cash on hand.
Programs like these help lenders and creditors get a realistic picture of the type of borrower you are by examining more than just your credit number on your report.
How Can I Raise My Credit Score by 200 Points vs. 100?
Following these nine tips can raise your credit score by 200 points as long as you are consistent and disciplined. The key to raising your credit score is to stay on track with your payments and refrain from opening new accounts.
Hard inquiries will stay on your credit report for two years, and negative items can stay on there for as long as seven, so there is no overnight fix that will raise your credit score by 200 points. However, that doesn’t mean that you won’t see your credit score significantly increase in just a few months with proper care.
Try to remove any negative item from your credit report. This is a powerful way to improve your credit scores. This way, it doesn’t stay on your credit report for the full seven years. Doing this will help you increase your credit score quicker, and you can see the improvement as quickly as the following month after the negative item has been removed.
Once you have taken care of all negative items on your credit report, you’ll need to maintain consistency each month. Make payments on time, lower your credit utilization rate, and keep old credit card accounts open without opening new accounts. Following these tips will be the key to improving your credit, and once your credit has improved, it will be easy to maintain from here on out.