Having a great credit score opens a lot of doors. This number directly impacts your mortgage rates, interest rates on car loans, and whether or not something will be available to you. If you’re planning on buying a home or applying for long-term financing, you should start by monitoring your credit report.
Here are six effective ways to boost your credit score fast.
Dispute and Remove Negative Items
Look over your credit report and determine whether there are items on it that should be removed. Having an old collections report or late payment flag can diminish your chances of getting approved for credit and loans. It’s also important to look for fraudulent items or inaccuracies about your name, the time frame, etc.
Remember to check whether the negative items are within the statute of limitations in your area. Generally speaking, a collections item is supposed to be removed after seven years. Hard inquiries are meant to be removed after two years. If the removal of these items were overlooked, having them removed could boost your score quickly.
Make Your Minimum Payments on Time
If you can’t commit to anything else, at least pay your minimum payments on time. Having debt isn’t the only factor that affects your credit score; it’s how you manage that debt.
Paying your minimum payment on time shows that you are a responsible borrower and meeting the terms of your loan. Conversely, missing minimum payments shows that you can’t handle the debt you’ve taken on and indicates that you aren’t qualified for future loans.
Create a Debt Repayment Strategy
Improve your debt utilization ratio by using a debt payment strategy to decrease your amount owing. Your debt utilization ratio is calculated by comparing how much credit you’ve been approved for versus how much you use. For example, if you’re approved to borrow $10,000 and only borrow $2,000, your credit score will be better than if you borrowed $8,000.
Use a debt repayment strategy, such as the debt cascade, snowball, avalanche, or mudslide, to pay down your debt in a way that fits your budget and lifestyle. With each passing month, you’ll see a correlating improvement in your credit score.
Lock Away Unused Credit Cards
Consider putting your credit cards somewhere out of sight and out of mind, so that you can’t use them impulsively. When you’re done with a credit card, do not shut down the account. Instead, leave it open so that the approved credit factors into your debt utilization ratio.
Leaving the credit cards tucked away ensures that they only get used for emergencies and make it easier to start the long climb back into the black.
Pay Off Your Credit Card Every Month
There’s a common misconception that you need to carry a balance to maintain your credit score. While it’s true that having no credit history can impact your credit score, carrying a balance is not necessary. In fact, the more you’re able to pay off each month, the better.
Keep in mind that utilities like your phone and power bill are now calculated into your credit score. Realistically, you can go without credit cards and still build credit over time.
Look for Lower Interest Rates
Finally, consider amalgamating your debt or transferring it to a lower interest option. For example, moving your credit debt to a line of credit can make it more manageable and ensure more of your money is going toward the principal rather than the interest.
Of course, the catch-22 here is that your low-interest options will be contingent on your credit score. As such, this might be a step to consider once you start gaining momentum and moving toward your goal.
With these six strategies, you can start improving your credit score quickly.