credit score
Business,  Finance

How To Fix Credit Score

Your credit scorea three-digit number lenders use to help them decide how likely it is theyll be repaid on time if they grant you a credit card or loanis an important factor in your financial life. The higher your scores, the more likely you are to qualify for loans and credit cards at the most favorable terms, which will save you money. If your credit history is not where you want it to be, youre not alone. Improving your credit scores takes time, but the sooner you address the issues that might be dragging them down, the faster your credit scores will go up. You can increase your scores by taking several steps, like establishing a track record of paying bills on time, paying down debt. How Credit Scores Are Calculated You likely have dozens, if not hundreds, of credit scores. Thats because a credit score is calculated by applying a mathematical algorithm to the information in one of your three credit reports, and there is no one uniform algorithm employed by all lenders or other financial companies to compute the scores. (Some credit scoring models are very common, like the FICO Score* , which ranges from to .) You dont have to get hung up on having multiple scores, though, because the factors that make your scores go up or down in different scoring models are usually similar. What makes one score go up versus down is always going to be the sameit just depends on the degree, says Barry Paperno, a consumer credit expert. Most scoring models take into account your payment history on loans and credit cards, how much revolving credit you regularly use, how long youve had accounts open, the types of accounts you have and how often you apply for new credit.How to Raise Your Credit Score Fast

Find Out When Your Issuer Reports Payment History

Pay Down Debt Strategically

Pay Twice a Month

Raise Your Credit Limits

Mix It Up

How long will it take to increase your credit score? It wont happen instantly, but if you follow the steps in this article your credit score will begin to go up within a couple of months. Lets get started

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Find Out When Your Issuer Reports Payment History

Call your credit card issuer and ask when your balance gets reported to the credit bureaus. That day is often the closing date (or the last day of the billing cycle) on your account. Note that this is different from the due date on your statement.Theres something called a credit utilization ratio. This is the amount of credit youve used compared to the amount of credit you have available. You have a ratio for your overall credit card use as well as for each credit card. Its best to have a ratio overall and on individual cards of less than %. But heres an insider tip: To boost your score even quicker, keep your credit utilization ratio under %. Heres an example of how the utilization ratio is calculated: Lets say you have two credit cards. Card A has a $6, credit limit and a $2, balance. Card B has a $, limit and you have a $1, balance on it. This is your utilization ratio per card: Card A = % (2,/6, = ., or %), which is too high. Card B = % (1,/, = ., or %), which is awesome. This is your overall credit utilization ratio: % (3,/, = 0.), which is very good. But heres the problem. Even if you pay your balance off every month (and you should), if your payment is received after the reporting date, your reported balance could be high and that negatively impacts your score because your ratio appears inflated. So, pay your bill just before the closing date. That way, your reported balance will be low or even zero. The FICO method will then use the lower balance to calculate your score. This lowers your utilization ratio and boosts your score.

Pay Down Debt Strategically

Okay, lets build on what you just learned about utilization ratios.In the above example, you have balances on more than one card. Note that Card A has a % ratio, which is high, and Card B has a wonderfully low % ratio. Since the FICO score also looks at each cards ratio, you can bump up your score by paying down the card with the higher balance. In the example above, pay down the balance on Card A to about $1, and your new ratio for Card A is % (1,/6, = .). Much better!

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3. Pay Twice a Month

Lets say youve had a rough couple of months with your finances. Maybe you needed to rebuild your deck (raising my hand) or get a new fridge. If you put big items on a credit card to get the rewards, it can temporarily throw your utilization ratio (and your credit score) out of whack. You know that call you made to get the closing date? Make a payment two weeks before the closing date and then make another payment just before the closing date. This, of course, assumes you have the money to pay off your big expense by the end of the month.By the way, dont use a credit card for a big bill if you plan to carry a balance. The compound interest will create an ugly pile of debt pretty quickly. Credit cards should never be used as a long-term loan unless you have a card with a zero percent introductory APR on purchases. Even then, you have to be mindful of the balance on the card and make sure you can pay the bill off before the intro period ends.

4. Raise Your Credit Limits

Now, if you tend to have problems with overspending, dont try this. The goal is to raise your credit limit on one or more cards so that your utilization ratio goes down. But, again, this only works out in your favor if you dont feel compelled to use the newly available credit. I also dont recommend trying this if you have missed payments with the issuer or have a downward-trending score. The issuer could see your request for a credit limit increase as a sign that youre about to have a financial crisis and need the extra credit. Ive actually seen this result in a decrease in credit limits. So, be sure your situation looks stable before you ask for an increase. That said, as long as youve been a great customer and your score is reasonably healthy, this is a good strategy to try. All you have to do is call your credit card company and inquire for an increase to your credit limit. Have an amount in mind before you call. Make that amount a little higher than what you want in case they feel the need to negotiate. Remember the example in #1? Card A has a $6, limit and you have a $2, balance on it. Thats a % utilization ratio (2,/6, = ., or %). If your limit goes up to $8,, then your new ratio is a more pleasing % (2,/8, = ., or %). The higher the limit, the lower your ratio will be and this helps your score.

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5. Mix It Up

A few years back, I realized I didnt have much of a mix of credit. I have credit cards with low utilization ratios and a mortgage, but I hadnt paid off an installment loan for a couple of decades. I wanted to raise my score a nudge, so I decided to get a car loan at a very low rate. I spent a year paying it off just to get a mix in my credit. At first, my score went down a little, but after about six months, my score started increasing. Your credit blend is only % of your FICO score, but sometimes that little bit can bump you up from good credit to excellent credit. Now, I wasnt planning on applying for credit within the next six months, so my approach was fine. But if youre refinancing your mortgage (or planning similarly something big) and you want a quick boost, dont use this strategy. This is a good one for a long-term approach. Bottom Line When you want to boost your credit score, there are two basic rules you have to follow: First, keep your credit card balances low.Second, pay your bills on time (and in full). Do these two things and then toss in one or more of the sneaky ways above to give your score a kickstart. And remember you do nothave to carry a balance to build a good score. If you do that, youre on a slippery slope to debt.