As you’ve probably figured out by now, your credit score is a pretty crucial element to your adult life. That three-digit number is a significant determining factor in your ability to purchase a home or car, get approved for a small business loan, improve your credit card interest rates, and more. Bottom line, you need that number to be in good condition.
Of course, before you can work toward boosting your credit score, you first need to know what it is. Make a habit of checking your credit report at least once a year (and more often if you plan to shop for a loan in the near future) with each of the three major reporting agencies—Experian, Equifax, and TransUnion.
Each lender has their own standards for what makes a good or bad credit score. But to give you a benchmark, here are our general guidelines at Fundera:
By our standards, a credit score above 700 is considered excellent. If your score is in the 600s, that’s around average but still considered fundable in most cases. A score below 550, on the other hand, is considered poor, and may seriously impact our customers’ ability to secure a business loan.
If a less-than-stellar credit score is holding you back from your financial goals, it’s time to take proactive steps to improve your credit history. While there’s no such thing as an overnight fix, here are five tips you can implement today to start the process of boosting your personal credit score.
1. Fix Any Errors on Your Credit Report
Errors on our credit reports are not as uncommon as we’d like to believe. In fact, an FTC study found that as many as one in five people suffer from errors on their credit report! These errors could be the reason someone is denied a loan or has higher interest rates on a large purchase. After those errors were disputed, the study showed that approximately one in twenty had a maximum credit score change of 25 points—talk about a quick boost!
Whether a case of mistaken identity, bad debt that was falsely reported, or even a case of identity theft—any number of issues could cause discrepancies which may impact your credit score. So again, check your credit report at least once a year with each of the three major reporting agencies, and if you encounter any errors, contact the credit bureau in writing to dispute the report.
2. Raise Your Credit Limit
Increasing your credit limit doesn’t mean you should be increasing your spending. In fact, the more credit you have available to spend, the better it looks for your credit. It’s called the utilization rate.
The utilization rate is calculated for each individual card in your name. It doesn’t look good if each card is maxed out or almost to their limit. According to Bankrate, you should aim to keep your utilization rate below 20 percent to optimize your credit score.
3. Pay Down Your Balances
We get it, you may not be able to pay every one your credit cards off right away. After all, that’s why most people have credit cards in the first place, right? But, just as we mentioned, your utilization rate is important when it comes to your credit score. Reducing your debt is a good way to quickly boost your credit score.
4. Don’t Close Old Credit Accounts
Now that you’re on a mission to quickly boost your credit score, you may pay off some credit cards or other old debts. That’s a great idea! But go ahead and keep those accounts open even after you’ve paid them off.
Many people assume that they should close out any old accounts they aren’t using, but canceling an old account can actually do more harm than good. Here’s why:
When FICO calculates your credit score, they take a look at your credit card history; having a long-standing credit account can impact your score by as much as 15 percent. Plus, having a variety of credit lines may positively affect your score by up to another 10 percent.
The idea of having multiple credit accounts not in use also goes back to the idea of credit utilization, which makes up 30 percent of your overall credit score.
5. Pay Your Bills on Time
This one may be obvious, but it can’t be overstated. It is absolutely critical that you pay your bills on time, every time.
Any delinquent payment that gets sent to a collection agency could potentially stay on your credit report for up to seven years! That is not baggage you want to carry around.
Make a plan to catch up on any late bills before they get sent to collections, and consider setting up your bank account to make automatic payments. Whether your late payments are an issue of cash flow or of organization, do what it takes to get a handle on your debt payments.
Whether you’re applying for a business loan, trying to buy a house or car, or just living your everyday life, your credit history is extremely important to your financial future. So make a point to pay bills on time, keep track of your open credit accounts, and check your credit report for errors at least once every six months to a year. If you follow our five tips to quickly boost your credit score, you should be on your way improving your credit score quickly!