How to Improve Your Credit Score Fast

We've all heard of credit. Whether you associate credit scores with being a good thing, or with being an annoying inconvenience. In this article, we're going to break down why you need a good credit score.

And how to increase your credit scores and how actually work towards achieving a perfect credit score. Before we dive into this, we need to understand how credit actually works.

Credit Risks

So credit scores are on a scale from 300 to 850. And this score represents your credit risk to banks and lenders, this number represents the likelihood of you actually paying your bills or paying back loans on time, you can kind of think of it like the mental scale that you have in your head of how trustworthy a friend is, when you lend them money, we all have that one friend that we know will never pay us back if we pay for something or lend them money. 

So the likelihood of you actually lending that person money when they ask is probably pretty low if you've encountered that with them once or twice, so banks and lenders are doing the exact same thing. Now they will break this score down into different ranges, a score between 306 and 629 is generally considered bad 630 to 689 is fair, and 690 to 719 is good.

And any score between 720 and 850 is considered excellent for a lot of young people, especially credit scores can seem like this random number that just changes all the time and they don't actually start paying attention to it until it's too late. For any major purchase that you're going to make in your life like a house or a car.

How To Improve Your Credit Score

If you intend on taking out a loan, you will need a good credit score. But credit scores aren't something that you can build or fix overnight. So it is something that you need to start paying attention to as soon as you're aware of it. You don't want to get to the age where you're trying to buy a house and go to get a loan. 

And then suddenly they tell you that your credit score isn't high enough and discover that it'll actually take a while to get there and you'll miss out on the house you were looking at. When you have a lower credit score, you'll have to pay higher interest rates whenever you're trying to take out a loan for a house or a car, or a personal loan. Or you may just have fewer loan options.

In general, sometimes a low credit score can cause you to not qualify for a loan at all. So yes, your credit score can have you paying more for the things that you want most how well if you're trying to buy a $500,000 home and your credit score was 630 at a 6.6% interest rate, your monthly payment comes out to $3,193.

But if you had a 730 credit score, and you were able to qualify for a 4.7% interest rate, your monthly payment would be $2,593. So without a bad credit score, you'd be paying $600 more per month, and $216,000 more over the life of the loan bad credit can follow you around for years, so it's best to build a good credit score from the beginning or to be extremely proactive about improving it. 

 Payment History

The first category is payment history. This is just the record of whether or not you've paid your bills and loans on time the things that negatively affect this part of your score are making late payments or completely missing payments, you can start improving this part of your score by paying all of your bills on time you want to pay them on time and in full every month.

And you don't have to actively remember when your bills are due to go into every single account that you have and set up automatic payments. if you do not have automatic payments set up and go do that.

5 Tips on How to Get an Excellent Credit Score

If you do accidentally miss a payment or make a late payment you can sometimes As contact your credit card company and have them wipe that late payment from your record.

If you do use smart credit, then you can do that directly through them. And you don't actually have to figure out who to call. But do realize that this is like a one-time chance type of thing, you aren't going to be able to make your payments late every month and call them up and just be like, Oops, sorry, I forgot again, like it doesn't work like that. They'll forgive you once, maybe twice. But you need to make sure that you're making those payments on time.

Credit Utilization

The second category is credit utilization. This is how much of your available credit you're actually using. So what negatively affects this is if you're using too much of your available credit. Or if you're maxing out your credit cards, how you can improve this part of your score is by using less of your available credit. 

Some people recommend that using less than 30% of your credit, but really using less than 10% is going to be best, what does that actually mean? So for example, if you had a $5,000 limit on your credit card, you would only want to use 10% of that which would be $500.

If you're letting that credit card hit $5,000 Every month, that's not going to look good to your lenders, and it's not going to be good for your credit score.

The Length of Your Credit History

The third category is the length of your credit history. This is simply how long you've had your lines of credit. So what negatively affects this is if you are unnecessarily closing down old credit card accounts or letting your old cards go dormant. So some credit card companies will close down your accounts automatically if a credit card isn't used in like several years. 

So a way to make sure that you're keeping your old cards open is to put a simple recurring charge on them. So for example, if you have a Spotify or Netflix subscription, putting that on, there would be a good way to make sure that that credit card doesn't get closed down, there's not a ton that you can do to expedite this part of your credit score improving because it does take time, obviously. 

But what you can potentially do is become an authorized user on someone else's card that has had that line of credit for longer. Now if you do this, you do want to make sure that they are someone that you trust that also has a good credit score themselves.

Credit Mix

The fourth category is credit mix. This is the variety of the different types of credit that you actually have what negatively affects this category would be having only one type of credit.

So for example, if you've only ever had one credit card, but you haven't had anything else, or if you only have a student loan, but you've never opened credit cards, what positively impacts part of your score is simply to have a mix of credit.

How To Get A Perfect Credit Score

So for example, if you have a car loan, a home loan, and you have a few credit cards, your score in this category is likely going to be a little bit higher than someone that just has a single credit card. This category is also why sometimes you'll hear of people who paid off their student loans or paid off their house and their credit score will actually drop a little bit. 

That doesn't mean that you shouldn't pay off loans Your score will recover. It's just because you are taking away one of those extra types of credit that it affects this part of your score.

New Credit and Recent Applications

The fifth category is new credit and recent applications. This is how many lines of credit you've recently applied for. And you want to be really careful with this one. You don't want to go and apply to like 10 different credit cards at the same time. What negatively affects as part of your score is having too many recent applications or too many recent hard inquiries, which is where your lenders or bank are getting your credit score from the credit bureaus.

What positively affects it is just having fewer applications. So don't apply to lines of credit or loans that you don't actually need. Note that if you're buying a house and you're shopping around for different rates on your mortgage, they will do a hard pull on your credit. But as long as you are shopping for those rates within a 15 to 45-day period, they'll count all of those inquiries as just one.

Also with like shortages and stuff if you are sticking with one lender, and they do have to do multiple hard inquiries because your building process or your buying process is stretching out. A lot of times they'll forgive that too because they're like, we know that we're the ones that have pulled the credit this many times so that won't affect your loan. But of course, do always check that with them. 

So do you actually need a perfect credit score? The short answer is no. According to Experian, once your score is above 760, you're going to be getting the best interest rates. And if you're in that top of the excellent range, most lenders aren't going to recognize a difference between an 800 credit score and an 850.

Credit scores can also change and fluctuate due to a variety of things we discussed. So even if you do one day hit that 850 credit score, it can go back down even though you should aim to have your credit score as high as you possibly can. Once you're in that 760 And above range.