Quick-Fix Tips for Your Credit
In 2018, the average American credit score hit an all-time high of 704, up from a low of 686 in 2009, according to Fair Isaac Corp. (better known as FICO). Those scores are widely used by banks, mortgage lenders, credit card companies and others to decide how much credit to extend, so the uptick is good news for all of us.
If your credit score is significantly below that, now might be a good time to take steps to improve it.
FICO credit scores range from 300 on the low end to 850 on the high end, and the credit score number you’re assigned could influence whether that auto loan you submitted is approved or you get that credit card for which you’ve applied.
Yet even if your credit is good, there is still room for improvement. There are some simple steps that anyone can take to quickly boost their credit score and put themselves in a more advantageous financial position.
How advantageous? Data reveals that steering a credit score from the “fair” category (defined as a FICO Score of 580 to 669) to “very good” (a FICO Score of 740 to 799) can save consumers $45,283 in higher interest rates over the course of a lifetime.
How do you begin to improve your credit score? Try these five steps.
- Make a lump-sum payment to one or more of your credit cards
- Set up auto payments
- Make multiple monthly payments
- Pay bills before they are due
- Ask for a credit limit increase
- The takeaway
Make a lump-sum payment to one or more of your credit cards
Very few financial strategies move the needle like using a lump-sum payment to pay a big chunk, if not all, of your credit card debt.
This strategy can improve your credit utilization rate, which is the ratio of credit card debt you owe to your total credit limit. It’s a big factor, accounting for about 30% of your FICO Score.
The goal is to keep your credit utilization figure below 30%. That means if you have a credit card with a limit of $10,000, you should maintain a balance of $3,000 or less. Having that much financial breathing room shows creditors that you know how to manage your debts capably and don’t overspend. If your utilization rate is above 30%, a lump-sum payment that brings it below that threshold — or closer to it — can significantly improve your credit score.
Set up auto payments
It’s easy to miss a payment deadline, but it’s hard to reverse the damage it does to your credit score. Setting up auto payments for those monthly outstanding bills can help avoid late payments and put you on track to building a solid payment history.
Payment history typically accounts for 35% of your total FICO Score. Late payments generate a big red flag for creditors and lenders as they elevate the risk that a consumer won’t pay their bills on time.
You can usually set up automatic payments with any creditor you pay on a monthly basis. Just make sure you have the date correct and that there are always enough funds in your account to cover the payment.
Make multiple monthly payments
Making multiple monthly payments is another good way to provide a shot of adrenaline to your credit score, especially when making revolving debt payments on things like credit cards or bank lines of credit. It not only reduces the likelihood of late payments, but it also helps pay down credit account balances more quickly, which helps your credit utilization rate.
To start, try scheduling one monthly payment based on your best estimate of your monthly credit card bill or lines of credit. As a rule of thumb, aim to pay more than half of your monthly bill with that payment. Just make sure to make the payment online so it’s recorded right away.
Then, when your monthly bill arrives, just pay the remaining amount (automatic payments help here, too), ensuring that you’ll be well ahead of your outstanding credit obligations. You’ll also save on interest charges as credit card companies, for example, calculate interest on a daily basis.
Pay bills before they are due
This strategy piggybacks on the multiple monthly payment strategy but expands it to all your monthly bills.
The fact is, paying bills late usually generates late fees and penalties. Plus, after 30 days, a creditor can report your late payment to the main credit reporting agencies, which can significantly damage your credit score, particularly if it’s on the high end.
According to Equifax, a single 30-day late payment can trigger up to a 110-point decline in a credit score for an individual with a 780 FICO credit score who has never missed a credit account payment.
Timely payments are a huge factor in FICO credit scoring models. Just keep making those early payments and your credit score should rise.
Ask for a credit limit increase
Asking your credit card company for a credit limit increase could significantly help your credit score. Of course, this strategy only works if you resist the temptation to max out your new limit. If you get a green light for the limit hike, keep your spending low and make sure you pay off the balance every month.
This will lower your credit utilization ratio immediately. A $2,000 limit hike on a credit card that previously had a $10,000 limit improves your utilization rate the day it hits your card account.
Asking for a credit limit increase is easy and can usually be done online with your bank or credit card provider. If you’ve been doing a great job paying your bills every month, they may even boost your credit limit automatically.
Boosting your credit score in a hurry may be easier than you think. It just requires some planning, some discipline and a little understanding of how your credit score is determined. One thing is for sure: Once you see that number creep upward, you’ll never want to see it change direction.