When you apply for a line of credit or home loan, lenders typically pull your credit from one or more of the three major credit bureaus, Equifax™, TransUnion, or Experian. They look at your credit history and your FICO® or VantageScore® credit scores to help determine your creditworthiness. Applicants with good or excellent credit scores are more likely to get approved and often get better rates.
But what if your credit isn’t so great? Don’t get discouraged. Even if your credit score falls in the low or average range there are some steps you can take to quickly boost your score before applying for a loan. Read on to learn the top five most effective strategies to improve your credit score fast.
1. Check For Mistakes on Your Credit Report
If you have a low credit score, it may not be your fault. Most people don’t think to check for errors on their credit reports. After all, isn’t that the credit bureau’s job? However, according to Forbes, a staggering 34% of consumers have found a mistake on their credit reports. Before applying for a loan or mortgage take the time to review your report and dispute any errors. The most common mistakes to look out for are:
- Fraudulent accounts
- Duplicate accounts
- Misreported payments
Under the Fair Credit Reporting Act, consumers have the right to review their credit reports for free each year. You can access your reports at annualcreditreport.com
2. Make Timely Payments
Payment history is one of the most important factors in determining your VantageScore® and FICO® credit scores, so it’s important to make timely payments. Your credit score will decrease if you miss payments or only partially pay the total amount owed. However, if you begin paying your credit cards on time, and in full, you’ll notice an increase in your credit score. A few ways to achieve making payments before the due dates are:
- Set up automatic payments, so you won’t forget to make a payment.
- Reach out to a credit card issuer to discuss hardship options.
- Stay on top of all your accounts, including those that don’t usually appear on your credit reports.
Consistently missing payments is a surefire way to cause a dip in your credit score, so if you want to see an improvement, be sure to make your payments on time.
3. Avoid Opening New Accounts
Have ever you noticed your credit score slightly dropping right after you opened a new credit card? The scoring system assumes that you may be experiencing cash flow issues if you suddenly open a new line of credit. Moreover, a new account will decrease the average age of your accounts, further decreasing your credit score.
If you make timely payments on your new account, your credit score will begin to increase. However, if you’re in the process of applying for a loan, it’s best to steer clear of opening any new account immediately before applying.
4. Start Paying Revolving Account Balances
If you don’t pay the balance in full on your credit card statement every month, the unpaid portion will carry over to the next month, and that’s called a revolving balance. Even if you’re paying the monthly minimum, having a high balance can lead to a high credit utilization rate, which is another factor that can affect your credit score.
A quick way to boost your credit score is to pay off your revolving account balances. If, that’s not possible pay off as much as you can. You can also reach out to your lender to ask for a balance increase, which will lower your credit utilization rate. Experts recommend keeping your credit utilization rate below 30% to reduce the effect it has on your credit score.
5. Request the Removal of Negative Entries
It’s not uncommon for outdated late payments and paid collection accounts to show up on your credit report. However, most people don’t ask to have these negative entries removed, even though they impact your credit score. Although this requires extra effort on your end, it’s worth it. Speak to the debt buyer or collections agency to remove a paid-off entry from your credit report. Having the entry completely removed from your report will increase your score more than having the accounts show up as paid.
Everyone’s credit report looks different, so there isn’t one simple solution to increasing credit scores. However, these five steps will lead you in the right direction, and in time, you’ll notice your credit score improving.
When shopping for the best rates for a loan or mortgage it’s important to ask your lender to do a soft credit inquiry before a hard inquiry. Soft inquiries provide the lender with the information they need to prequalify you for a loan without negatively impacting your credit score.
Lenders or mortgage brokers looking to add fully-customizable loan prequalification solutions to their list of services can contact FPN to learn more about PreQual.