Improving your credit generally takes hard work and a whole lot of patience. That being said, there are a few credit improvement strategies that can yield some results in a relatively short period of time. These methods will not turn bad credit into great credit overnight, of course, but they can potentially lead to a noticeable improvement.
Method #1: Lowering Utilization
Credit scoring models are designed to carefully consider a factor known as your revolving utilization ratio. This is the relationship between your credit card limits and the balances on those same accounts.
Here’s a quick look at how revolving utilization works. If you have three credit cards, each with a $1,000 limit, and those same three cards each have a $500 balance, then your aggregate utilization ratio is 50%: $1,500 ÷ $3,000 = 0.5 x 100 = 50%.
Lower is better! As you use up more of your available credit limits, your credit scores generally decline. Of course, this also means that as you pay down those same credit card balances and free up more available credit, then your scores will likely improve.
In fact, when you lower your revolving utilization ratio, your credit scores may begin to improve as soon as the next time that your card issuer reports your monthly account activity to the credit bureaus.
Another strategy for lowering revolving utilization ratios involves being removed as an authorized user from credit card accounts that have high balances.
If, for example, you’re an authorized user on a spouse’s account, and the card carries a high balance, you might consider asking your spouse to call the card issuer to get you removed from the account, at least temporarily. If the account is then removed from your credit reports, as is generally the case, then the account balance would no longer influence your revolving utilization ratio, nor harm your credit scores.
Authorized user accounts are not always negative. In fact, sometimes being newly added as an authorized user to a loved one’s existing credit card can benefit your credit scores in numerous ways.
The first way that an authorized user account might benefit you is by helping you to lower your aggregate revolving utilization ratio. If you’re added to an account with a high limit and a low balance, then your overall utilization ratio may go down and, as a result, your credit scores will likely go up.
Additionally, if the account to which you’re added is older than any of the other existing accounts on your credit reports, then your “age of credit” will increase as well. Credit scoring models generally consider the age of your oldest account and the average age of the accounts on your credit reports when calculating your scores. Being added to a well managed, older credit card account could potentially help you to see a quick credit score improvement.
Method #3: Removing Derogatory Information
Mistakes on credit reports happen, which is why it’s important for you to proactively check your credit reports often for errors. If you discover and successfully dispute derogatory information appearing on your credit reports, then the result could be a deletion of the offending information and a potential credit score improvement in a relatively short period of time.
Negative information on your credit reports unsurprisingly has the potential to damage your credit scores. However, if that negative information is removed, then any such influence would be removed as well. Keep in mind, of course, that if a derogatory item is removed from your credit reports due to inaccuracy, yet your reports remain plagued with other derogatory information, then any positive improvement may be minimal.
- What Your Credit Score Is Trying to Tell You
- A 12-Month Plan to Raise Your Credit Score
- One Way to Improve Your Credit Score Almost Immediately
John Ulzheimer is an expert on credit reporting, credit scoring, and identity theft. He has written four books on the topic and has been interviewed and quoted thousands of times over the past 10 years. With time spent at Equifax and FICO, Ulzheimer is the only credit expert who actually comes from the credit industry. He has been an expert witness in over 230 credit related lawsuits and has been qualified to testify in both federal and state courts on the topic of consumer credit.