Choosing to work on raising your credit score is an incredibly positive and powerful goal for 2020. Whether you’re looking to buy a house, get a new car, take out a personal loan or just want to improve your financial picture, improving your credit score is one of the best steps to take. Understanding how to improve your credit score may seem like a tall task, but with a detailed step-by-step credit score resolution program, you can start to see results and get yourself on the road to a better financial future.
What is a credit score?
A credit score is a quantitative number compiled by credit bureaus that gives a snapshot of your overall financial creditworthiness. In other words, it’s a number that indicates to banks, credit unions and lenders how good you’ve been about honoring your financial commitments in the past. While this number is not perfect, it does help financial institutions decide if whether or not to approve you for a loan, how much to lend and what interest rate to charge.
For example, if you’re interested in purchasing a home, many lenders will require a substantial down payment if you have a mediocre or poor credit score. But if you have a proven track record of honoring all your financial commitments, you may be able to secure a home loan with a low-down-payment or no down payment at all. Perks like this are only available to those with great credit, so your choice to work on improving your score will bear fruit.
How to improve your credit score month by month
While the following steps are laid out starting in January, there is no reason you can’t start this plan at any point in the year. If you’re starting this in April, treat April as if it’s January on this list. The best time to start working on improving your credit score will always be right now.
1. January, February, and March
The first step in how to improve your credit score is getting an accurate picture of where you are and setting realistic goals for the next 12 months. Begin by getting a detailed credit report from each of the national bureaus — Equifax, Experian and TransUnion. Each bureau uses a slightly different calculation system for your score and may have access to different information. By analyzing all three reports, you’ll get the most accurate and inclusive picture of your current creditworthiness.
As you look through your report, look for any discrepancies or incorrect information. A single mistake on your credit report, such as a late payment or account sent to collections, can bring your credit score down significantly. If you find errors, reach out to the company in charge of that account immediately and begin the process of rectifying the error.
Once your report is accurate, you can begin identifying the weak areas where you can build for improvement.
Request Credit Line Increases
During these months, you should also request credit line increases on all of your credit cards. This is not so you can go out and spend more money.
Credit scores look at how much borrowing power you have and how much of that you are utilizing. For example, if you have $10,000 of available credit on your cards and you have $1,000 spent, you are using 10% of your available credit. If you’re able to get that limit bumped up to $20,000, you are now only using 5% of your available credit without making a single new payment. This will help to increase your score.
Additionally, you’ll want to ensure you’ve got enough open credit accounts to build a credit history. Many people who have always paid their bills on time have low credit scores because they just don’t have a significant credit history. Look to have at least three forms of revolving credit open, which include things like credit cards, personal lines of credit and home equity lines of credit. By tapping into these and paying your bills on time, you begin to cultivate credit history.
2. April, May, and June
During the next three months, it’s all about consistency and following up. Continue to make your payments on time and make sure you’re actively building credit. Remember, building credit is not just about never making a late payment. You have to demonstrate your ability to borrow money and pay it back on-time and in the manner agreed upon.
You’ll also want to take these months to follow up on any discrepancies you initially identified in your credit report. While getting these fixed is the most important thing to you, you may find creditors dragging their feet to get them corrected.
3. July and August
This is your halfway point through the year and the perfect time to reassess where you are. During this month, redo all of the steps you did in January and February. Pull your credit reports again, check for and dispute discrepancies and identify where you can best improve. Ideally, you’ll see progress at this point but do not become discouraged if you are not.
Keep in mind you may have to pay a fee to pull your credit reports again from the bureaus. However, many credit card companies offer credit monitoring tools where you can check your score whenever you want at no extra cost. Inquire with your credit card companies if they offer a tool like this so you can monitor your credit all year.
4. September, October, November, and December
Closing out the year, you should pick up right where you left off — consistency. Are you continuing to make your payments on time? Are you utilizing some of your available credit to build a track record? Have you followed up on all of your disputes? Are you continuing to live within your means, keeping your utilized credit low? Many people look for a magical formula or quick fix for raising their credit score. The truth is it’s all about doing the right things over and over again.
How long will it take to raise my credit score?
The answer to this question will depend on a lot of different factors. These factors include how low your score was to begin with, what steps you’ve taken to correct your score, how each bureau weighs the factors you’re weakest in and how diligent you are in following your credit score resolution program. Can you raise your credit score over 100 points in a year? Absolutely. But it’s going to depend on the factors previously mentioned.
If you had disputed issues on your credit report, bureaus have 30 days to deal with those. You will see fruits of these fixes within your first 12 months. If you have late payments on your account that are legitimate, those will take seven years to come off your report. But as you continue to make more and more on-time payments, the impact of these late payments can be minimalized.
The bottom line
While it would be great to be able to increase your credit score overnight, it’s not always the case. Instead of looking for the quick fix, begin building a lifestyle of good credit habits. In time, credit bureaus will take notice of these changes, and your credit score will increase. Sometimes this can happen quickly and in other cases, it may take a little longer. Either way, every month you practice good credit habits is a month closer to reaping the rewards reserved for those with great credit scores.