How to Build a Better Credit Score in Just 6 to 12 Months

When it comes to creating or, in many circumstances, repairing your credit score, credit might appear to be such a major matter that you may not even know where to begin. Strip mall lenders make one assertion, and radio personalities' fans respond with another. Credit repair organizations offer to build your credit quickly, but at a cost. Credit card firms decline your application because you don't have enough credit history or a high enough credit score, creating a Catch-22 situation. If you can't acquire a credit card, how are you going to establish your credit history or score?

Which Credit-building Measures Can You Do on Your Own to Improve Your FICO Score?

Knowing how to enhance your credit score can assist you in keeping your finances in order. You are well aware that your credit score influences your capacity to get new loans and credit cards. You're undoubtedly also aware that your credit score influences the interest rates on such loans and credit cards. Many individuals are unaware that your credit score impacts other decisions, such as insurance rates, the cost of establishing utility services, the cell phone plans and gadgets you qualify for, apartment applications, rental down-payments, and even your ability to find a new job.

If your credit score has lately suffered and you want to improve it, the advice and methods below will help you raise it in months, if not weeks, and without any expenses. You never know when you'll need a service that necessitates a look at your credit report. Some of these tips may take months to have effect in your credit score, so getting started now will benefit you far more than waiting until later.

1. Fix Any Errors on Your Credit Report

The first and most important action you should take to enhance your FICO or VantageScore is to obtain your free credit reports, evaluate the information supplied by all three main consumer credit reporting agencies (Experian, Equifax, and TransUnion), and challenge any inaccuracies you find.

AnnualCreditReport.com is the only federally recognized site where you may obtain free copies of your credit report. As previously stated, federal law ensures your right to check your credit report at least once a year.

Every twelve months, you are entitled to one free report from each of the three CRAs. During the COVID-19 epidemic, however, these CRAs agreed to provide free credit reports weekly rather than yearly until April 2022.

Why should you be concerned about your credit reports? You may believe that the information provided by your creditors to your credit history is accurate and up to date. However, mistakes on credit records have long been widespread. According to several studies, the percentage of credit inaccuracies ranges from one in four reports for minor errors to one in twenty for major difficulties.

Many of these mistakes might harm your credit score, perhaps dropping it below what most lenders consider acceptable. To rectify inaccuracies on your credit report, first file a dispute on the home pages of each credit bureau, specifying the incorrect information. It takes roughly five to ten minutes and costs nothing.

Online, you may challenge information ranging from incorrect balances and payments to unrecognized accounts and out-of-date loans (older than seven to ten years). You can also dispute transcription or spelling problems in your name or address, but you may need to do so by letter.

When you file a dispute, the CRA sends the information to the creditor in question. That creditor has 30 days to react to your complaint. If the creditor lacks supporting documentation (e.g., signed contracts, evidence of payments), they may allow the dispute, at which point the CRA modifies the information in your favor.

The creditor may even opt to ignore your case entirely. After 30 days, the CRA will amend the information in your favor.

However, if the creditor feels they have documentation to back up the existing data, the dispute will be rejected within thirty days. In such circumstances, you will need to compile your documentation and receipts and contact the creditor personally. Request to see their proof and share yours with them until you can reach an agreement. As with all financial and legal situations, acquire all agreements and arrangements in writing.

2. Pay Your Past and Current Bills On-Time and Online

Many of the 132 elements that contribute to your FICO credit score have to do with the delinquency of your payments. If you miss a payment by more than 30 days, the creditor will report it as 30 days late, which will lower your credit score. Late payments of 60, 90, or 120 days or more will lower your credit score even worse.

While many late payments are caused by lack funds, far too many occur inadvertently because the customer forgot about the payment or it was lost or delayed in the mail (less common but still too often).

If you still pay your bills by mail, you might think about converting to one of numerous automatic payment solutions. When you mail checks, you have no control over when the creditor receives the money. Furthermore, history is littered with examples of creditors who would delay processing collected payments in order to impose a late fee. Such activities are illegal, but that doesn't imply they can't occur.

When you pay your bills using ACH (Automatic Clearinghouse or direct debit), on the other hand, you may assure that your money is received on time. You must supply your creditor with your bank's routing number as well as your account number in order to set up an ACH.

If you opt to use your bank's or credit union's online bill pay (OBP), you may have the same issues as if you sent your checks by mail. In many circumstances, internet bill payments are still transmitted by mail, so you have no control over when they arrive to your creditor.

However, either approach eliminates the need for you to remember to send your payment month after month. You may program your ACH or OBP to make or transmit the payment on the same day each month.

You can even request that your creditor pay off your credit card bill in full each month via ACH. This needs extra planning on your side since you must ensure that you have enough money in your account to pay your costs from the previous month.

If the payee attempts to deduct your payment when there is insufficient funds, you will almost certainly suffer an Insufficient Funds fee and your late payment may even appear on your credit record as a missed payment. If the payment is accepted, your bank or credit union may charge you an overdraft fee to offset the missing funds. Unless the account goes to collections, this will have no influence on your credit score.

3. Reduce Your Credit Card Balances

The balances on your credit cards and loans have a significant impact on your credit score. Surprisingly, revolving debt such as credit cards might have a greater impact on your credit rating than major obligations such as auto loans, mortgages, and school loans.

Keep in mind that your credit rating serves a single purpose: to anticipate how likely you are to make or miss future payments as accurately as possible. As it turns out, your ability to correctly handle a credit card predicts your future credit behavior far better than your payments on your home, vehicle, or college loans.

Furthermore, carrying sums close to your account credit limitations may harm your credit ratings. Again, if you recall the objective of credit ratings, this makes sense. The closer you get to your credit limit, the less leeway you have in the event of a financial emergency, and the more likely you are to skip future payments.

To grow your credit the fastest, make a single credit card purchase each month (no scoring variables imply that many transactions would build your credit any quicker) and then pay it off in full before the following bill due date. If you must carry a balance, make every attempt to lessen it as much as feasible. The lesser your account balances, in general, the better.

4. Pay Off Collection Accounts

Collection accounts and other bad entries on your credit history will have a significant negative impact on your credit scores. Whether they are the consequence of consumer expenditure or a medical emergency, collections imply that you are more likely to skip debt payments in the future.

Collection accounts are reported to credit bureaus for seven years after the creditor initially reports the account as overdue. This usually happens six to seven months after you missed your last payment.

You may lessen the negative impact on your credit rating by paying down or, better yet, off your collection account debt. Cleaning up any previous debts may enhance your credit score since it demonstrates to the credit scoring algorithm and, as a result, potential lenders that you are meeting your financial commitments.

In circumstances when a poor credit score is caused by many late payments rather than sums owed on collection accounts, paying off modest collection accounts will have far less positive benefits on your rating than catching up on your late payments.

5. Avoid Applying for Too Many New Accounts

Many of the 132 credit-scoring variables have the phrase "recently" in their explanation. In most circumstances, activity on accounts opened within the last few months or even a couple of years has a higher impact on your credit ratings than activity on older accounts. Again, this is entirely dependent on the accuracy of this information in forecasting your future credit-related behavior. This suggests that people who max out a fresh credit card are more likely than persons with identical credit histories who max out a credit card they've had for 20 years to miss future credit card payments.

Furthermore, if you apply for many credit card or store card accounts or loans in a short period of time, this might signal that you will have financial troubles in the near future. As a result, especially for individuals with limited credit histories, each application might reduce their credit score by 5 to 10 points (1 percent to 2 percent of the total score possible).

As a result, you should refrain from applying for and creating several new accounts in a short period of time. Most users can only open two or three new accounts each year. Another reason new accounts might harm your score is the general rule that older accounts aid you more than newer accounts. Opening a number of new accounts can significantly reduce the average age of your open accounts.

Instead, let the age of your current accounts to gradually enhance your credit rating over time. Only open one or two accounts as required, and utilize those accounts to establish your credit by using them sparingly and consistently paying your payments on time.

Another school of thinking holds that creating a new account can improve your credit by lowering your credit use ratio. However, aside from the benefits of having newer accounts on your credit history, you may also achieve this by simply requesting a credit limit increase on your present credit cards.

Final Thoughts

Following these 5 methods can help you steadily and swiftly raise your score. These tactics will help you reach your credit objectives whether you are seeking to increase a low score to a good score or a good score to an amazing score.

While your efforts over the next several months may take some time to improve your scores, it will almost certainly be much faster than waiting seven years for unfavorable things to go off your credit report organically. It will take some effort and patience, but it will be well worth it in the end. Your credit ratings influence almost all significant financial decisions in life and represent your financial management experience over the last decade.