How long would it take to increase my credit score? This is a question many of us keep on asking. Well, the truth is that it does not happen overnight. However, the good news is that there are a few steps one can apply, which can help speed up the process. In this short document, we will mention a few ways to help boost the credit score.
- Learn When Your Creditors Report Payment History To The Credit Bureaus
Contact your credit issuers and ask to know the date when your balance is going to be reported to the Credit Bureaus. The reporting day is known as the final day of the billing cycle or closing date on your account. However, you have to remember that this is different from the ‘Due Date.’
Everyone has a ratio for the overall credit card used and for every credit card owned. This is what is known as the ‘Credit Utilization Ratio.’ It is generally the amount of credit one has used compared to the amount of credit they have available.
As such, the best ratio to have is less than 30% in both overall and individual credit cards. However, to increase your credit score fast, consider keeping the ratio under 10%.
How is the utilization ratio calculated? Well, here’s how:
Let us assume that you own two credit cards. In credit card A, you have a balance of $2,500 and a credit limit of $6,000. On the other hand, credit card B has a balance of $1,000, with a limit of $10,000.
The utilization ratio per card is going to be:
- Card A: – 2,500/6,000 which comes to 0.416, which is equivalent to 42% (This is too high)
- Card B: -1,000/10,000 which comes to 0.100 which is equivalent to 10% (This is the best range)
- Overall credit utilization ration of card A & B: – 3,500 (total balance)/ 16,000 (total limit) which comes to 0.218, which is equivalent to 22% (a good range)
Here is a problem with this method: if you pay your balance off every month (which is important), but your balance is received after the reporting date, then the reported balance will surely be high. This could impact you negatively because the ratio will appear magnified.
Therefore, to avoid this problem, it is wise to pay your bill before the closing date. Only through this method will your reported balance going to be low and even close to zero. The ratio will be used to calculate your credit score, and hence the lower the utilization ratio, the better your score.
- The Debt Pay Down Strategy
Building up more on utilization ratios using the example above.
We have learned that card A has a higher ratio, while card B has a wonderful ratio. With that said, because the FICO score looks at each card ration one may have, you can improve the ratio by paying down the card with the highest balance. For example, using the example above, we saw Card A has the highest balance. As such, you may choose to down pay it to about $1,500, which will improve its ratio to about 25%.
- Consider Paying Twice A Month
Assuming that your finances have been rough a few months, or need to buy a fridge, or rebuild a deck. The truth is that putting big or huge financial purchases on a credit card can affect your utilization ratio. Therefore, how do you tackle this? Well, first try to know the closing date. This is very important as you can take advantage of big purchases to improve the credit score.
After this, try making payments in halves. What does this mean? Assuming that you have a month to pay the credit, you should consider paying half of the amount (or required amount) 2 weeks in a month (or before the closing date) and then make another payment before the closing date. This technique applies to the amount you need to pay by the end of the month and monthly payments based on your loan terms.
Never use your credit card for big expenses that you plan to carry a balance. Here’s why: the prime rate carried with credit cards is so high that it can eventually fashion a dreadful pile of debt. Never use your credit cards for long-term finances except you have a card with 0% introductory APR on acquisitions. Even with this, you have to be mindful and make the correct choices. Try one of these same day loans instead. As an example, here’s a good guide on how to get a same day loan UK.
- Increase Credit Limit
If you have a problem with overspending, then you should never try this. Increasing the credit limit helps in decreasing the utilization ratio. Also, this will work if only you do not feel compelled to use newly available credits.
You should never try this if you have missed payment with a creditor or have a downward trending score. That is because a creditor may see your request for an increase in credit limit as a sign that you are about to have a financial crisis, and you need the extra credit. As a result, your creditors will rather decrease the credit limit, which is quite the opposite of what you intended.
Therefore, ensure your situation is stable before taking this action. This process does not demand a lot of steps. All you have to do is call your creditors and request an increase in credit limit. It is wise to have an amount in mind before you call. It is also important to make the amount a bit higher than what you actually need as a way to counteract negotiations.
How will this technique work in your favor?
Using the example above, we found that Card A credit utilisation ratio of 42% because it has a limit of $6,000 and a balance of 2,500. If you work to increase the limit to something like $8,500, your ratio will decrease to 29% (remember the math 2,500/8,500 = 0.294).
- Mix Everything Up
To improve your rating, consider mixing credit. You can achieve this by having a credit card with a low utilization ratio, a mortgage, and a loan (such as a car loan at a lower rate), which you should pay it off in installments.
By doing this, you will begin to experience a difference in about half a year (6 months). Doing this may bring your rate from 10% of your FICO score to even lower, which is very excellent.
NOTE: if you plan to refinance your mortgage or something similar, you should not apply this technique. This method is best for a long-term approach.