3 Ways To Improve Your Credit Score

by Nancy

Improving your credit score is possible under even challenging circumstances if you have accurate information and an effective strategy. Improving your credit score is also crucial to getting the loans and living situations you need in life. Many U.S. consumers choose to accept their credit score as-is because they either do not understand how to improve it or think there is no way to make it happen. The latter perspective is of course untrue and many consumers suffer from bad credit unnecessarily.

Some U.S. consumers lack the patience required to correct errors on credit reports or engage in credit repair strategies. For example, improving your credit score slightly might only take one to three months but making significant lasting improvements often takes six months to a year or more. How do I understand my credit report? What are the best ways to improve my credit score in 2021? Read ahead for helpful strategies & tips to improve your credit score for good.

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Why Improving Your Credit Score Is Important (regardless of your rating)

Improving your credit score is important for people with bad and good credit alike. Why is improving your credit score important, especially if you already have good credit? Unless you are able to pay for your car(s) and home with cash you are going to need financing. This applies to all American consumers regardless of credit standing. At a fundamental level bad credit scores adversely impact your ability to get loans and credit card accounts. Bad credit sometimes even prevents you from opening checking accounts with banks or credit unions.

Your credit score also affects the interest rates charged when borrowing money. Revolving credit and installment loan accounts both charge an annual percentage rate (APR) as the cost of doing business. The higher your credit score is rated the lower the APRs you are generally offered. This means a one-point difference lifting you from an A to an A+ credit rating might save you multiple thousands of dollars in finance charges over your loan term. Additional reasons improving your credit score is important include:

  • Increased financial stability.
  • More purchase options.
  • Better life for you and/or your family.
  • Peace of mind.

What is a FICO Score?

Your FICO score is a three-digit number compiled by the Fair Isaac Corporation as a way of indicating your past, present and potential creditworthiness to lenders. Your FICO score is based on your total credit history including past & present accounts/activity. Scores range from 300 to 850 with higher scores representing the best credit scores. How do FICO scores translate to specific credit ratings? What are additional ways in which a FICO score is important?

In addition to getting you lower APRs for loans and credit card accounts your FICO score also indicates your trustworthiness to potential landlords. Landlords know prospective tenants with higher FICO scores are unlikely to skip on rent and other obligations. Finally, more than ninety percent of credit/lending applications are accepted/rejected based on FICO scores alone. Experian, Equifax and TransUnion are the three primary credit bureaus today. While each bureau might calculate your FICO score differently, ranges & ratings are similar across the board. Credit ratings associated with ranges of FICO scores are as follows:

  • 300-580: Bad (most commonly leads to automatic denials).
  • 580-669: Poor to fair.
  • 670-739: Good to very good.
  • 740-850: Great to excellent.

Fast Credit Repair Tip- Pay Your Bills Now

One of the fastest and most effective methods for improving your credit score is to start paying all your bills on time. Paying your bills on time has a fast-acting positive affect on your credit score but might take six to twelve months to see bigger changes. Do you have outstanding debt at risk of entering charge-off status? Do you owe legitimate outstanding medical bills you are capable of paying but ignored?

The absolute fastest way to improve your credit score is to pay off all outstanding debt (excluding current revolving/installment loans in good standing). Medical bills, utility bills, phone bills, overdrawn bank accounts and other legitimate debt listed on your credit report needs to be paid off as a priority if you truly want your credit score to improve fast.

Fast Credit Repair Strategy – Lower your Balances

Paying down high balances is another effective and fast-acting credit repair strategy. Instead of spending money on takeout or restaurant food use the money to pay an extra $50-$100 toward your high-balance credit card bill. Sacrifice some comfort and convenient items to make significantly higher payments for several months. Too many high credit card balances lowers your FICO score. Paying down those balances raises your FICO score and gets you closer to achieving the financial status you seek.

Credit Score Improvement Trick: Make Bi-Monthly Payments

Some lenders/account issuers report to major credit bureaus twice a month. Some report at odd or random times during each month. Making bi-monthly payments improves the chances of your accounts showing lower balances. Bi-monthly payments more accurately represent your actual payment history, debt ratio and the way you use your credit.

Credit Score Strategy: Use your Credit Wisely

You pay for food, gas and other household expenses every month. Use a credit card to pay those bills instead of cash, checks or debit cards. Then pay off the balance in full once a month right before the account issuer reports your monthly status to the credit bureaus. Using your credit too much is what damages your score/rating. Using your credit responsibly, however, actually increases your FICO score.

Additional Tip – Take Advantage of Affordable Offers

PayPal’s Pay-in-4 and Affirm both offer zero-interest payments on certain purchases. If you have the money to pay for a purchase in full but need to boost your credit score, pay using one of these methods. Four payments are billed over six weeks time and are reported to the major bureaus.

Check Your Credit Report for Free

AnnualCreditReport.com currently offers free credit reports up to six times/year through 2026. During the COVID-19 pandemic consumers are allowed to check credit reports for free once a week. Knowing what is on your credit report helps know what needs improvement.