If you're planning to apply for a loan or credit card within the next six months or so, you might worry that you don't have time to raise your credit score. But if you take steps to improve your credit history now, you might see an improvement in your score in as little as a couple months.
Actions including paying down balances, making on-time payments, paying off collections and removing errors from your credit report can help you quickly improve your credit score.
Experts say to be patient, though, as your ability to noticeably affect your score within a relatively short period of time will depend on what kind of issues are dragging it down.
"It's really more about having realistic expectations," says John Ulzheimer, a credit expert who has worked at Equifax and FICO. "You can't just snap your fingers and improve your scores. And there is no silver bullet. The system isn't set up to be charitable, but rather punitive."
Why Improve Your Credit Score?
A high credit score is a valuable asset that can help you lock in the lowest interest rates available on home, car or personal loans. A low score can trigger a higher interest rate, and it could endanger your ability to get a loan or credit card at all.
Have you looked at your credit report lately? You can obtain one free credit report from each of the credit bureaus – Equifax, Experian and TransUnion – every 12 months from AnnualCreditReport.com. But this site doesn't provide FICO scores. The FICO score is the most commonly used consumer credit score among lenders.
If you intend to make a major purchase, ask the lender which score it will use and then purchase that score or set of scores, advises credit score site myFICO.com. The earlier you check your score before you apply for a loan, the better.
"It's always important to maintain good credit scores, but it's magnified in the weeks before you are going to apply for a loan or a credit card," Ulzheimer says.
Factors That Influence Your Credit Score
Credit scores are based on credit reports, which are collections of your credit-related transactions, including monthly payments for loans and credit cards. Delinquencies, defaults or unpaid collection actions will negatively affect your report and drag down your score.
Tommy Lee, principal scientist at FICO, says these five factors have the most influence on your FICO score:
- Payment history: On-time, late or missed payments and collections account for 35 percent of your score.
- Credit use: The ratio of your balances on revolving credit accounts compared with credit limits, known as your credit utilization ratio, makes up 30 percent.
- Length of credit history: The age of your oldest credit account and the average age of your accounts determine 15 percent of your score.
- New credit: Hard inquiries for new credit comprise just 10 percent.
- Credit mix: Your mix of different types of credit, such as revolving and installment accounts, counts as 10 percent of your score.
Steps to Quickly Improve Your Credit Score
Some of the fastest solutions to increase your credit score include:
- Paying down balances.
- Paying off collection accounts.
- Fixing credit report errors.
- Building positive history.
Paying down balances. A long history of late or missed payments or maxed-out credit limits can have a serious negative effect on your credit rating. But getting current on payments can help your payment history, and lowering your credit utilization ratio is a good idea too. Payment history and credit use are the two largest factors affecting your FICO credit score, and both can be improved by paying down balances as you make on-time payments of more than the minimum required.
Paying down high revolving balances on credit cards – especially if they are putting you at or near your credit limit – is a winning strategy to boost your score quickly, says Jeff Richardson, vice president and group head of marketing and communications at VantageScore Solutions. VantageScore is another widely used consumer credit score and was created through a joint effort from the three major credit bureaus (Experian, Equifax and TransUnion).
"All of the models are going to be pretty sensitive to utilization. If a consumer can pay down credit card debt, that has a pretty short-term impact," Richardson says.
If you have a high balance on a card, you might also consider asking the credit card company to raise your credit line to lower your credit utilization ratio.
Any action taken could be reflected in your score in as little as a month. When you might see an uptick will depend on when your lender reports the update to the credit agencies, Lee says.
If you were approved for a bigger credit line, you may not see much of a score improvement if your card issuer won't increase your limit enough to significantly lower your utilization ratio, Ulzheimer cautions.
Paying off collection accounts. Resolving negative items, such as collection accounts, will help your score improve.
In the latest version of the FICO score and VantageScore's newest versions – check whether your financial institution uses these – you aren't penalized for paying off collection debt in full. But even if you pay off the debt, the collection account could stay on your credit report.
Also, if you have a current delinquency for a credit card or a loan payment, getting caught up as quickly as possible will help, Lee says.
Fixing credit report errors. When you get your credit report, look for errors such as a missed payment that you actually made on time or an account that doesn't belong to you. If you see a problem, contact the lender and the credit reporting agency to have it fixed. Usually, your claim must be investigated within 30 days. Removing errors from your credit report can improve your score quickly if the investigation is resolved within a few weeks.
Building positive history. If you have limited or no credit usage, that can be a problem for your credit score. With no real credit history, lenders can't accurately judge your level of credit risk.
"The FICO score is built off historical data," Lee says.
If you have about six months before you need to have a better credit score, you may be able to open a secured credit card or a credit-builder loan.These products, when used responsibly, can help you build a positive credit history.
Over the course of six months, your score could continue to climb, but "the key is to not get in over your head," Richardson says. Take it slow and don't get into trouble, especially if you only have a few credit accounts, because negative marks can have more of an impact than if you have numerous accounts.
If you need a better credit score within a few weeks, you may not have enough time to make a difference with a new account. In fact, if you're new to credit, FICO won't even establish your credit history until you have at least one account open for at least six months or more.
Another option is to bring back to life unused credit accounts, if you have them, by making small charges and paying them off. "We've seen that the past data indicates consumers who use a very small percentage of available credit are a better risk than those do not use their credit at all," Lee says.
Even a $1 statement balance would be considered using credit, he says.
Or you could become an authorized user on someone else's credit card to boost your credit. As an authorized user, the payment history and credit utilization for the account will be added to your credit history. That means you could potentially benefit from years of on-time payments.
"If you have no credit history or limited credit history, becoming an authorized user can provide some short-term benefits," Richardson says.
But it is not without risk. Make sure the account has credit utilization below 30 percent as well as a strong payment history, or you could have years of late payments added to your credit report. And keep in mind that information from authorized user accounts is weighted less than other accounts, Lee says.
Long-Term Credit Score Improvement
Of course, the best way to manage your credit score is to be consistent with financial best practices instead of to scramble months before you might need a new loan. Consistency is especially important because the need for a major purchase often comes out of nowhere, such as obtaining an auto loan to replace a car that suddenly broke down.
If your score is not where you'd like it to be and you've exhausted all the short-term options to improve it, you might just need to wait a few years until negative marks fade. Generally, collection accounts are removed from your credit history after seven years.
In the long term, "the best advice is the same for everyone," Ulzheimer says. "Pay off debts as best as you can, as quickly as you can. Avoid missing payments on anything. And only apply for credit when you actually need it. If you can do these things and stick to this as a new reality, then your scores have no choice but to improve."