Nobody wants to be considered “average”, right? Average is boring, and more importantly it’s unimpressive; no one’s ever gotten into Harvard with an average GPA, and hardly anyone starts for the team with average skills.
The same can be said about average credit.
According to multiple online sources, average credit consumers have a credit score that hovers around 690. To continue with the school analogy, having a 690 score will get you to graduation, but it won’t put you on the honor roll. In order to get the lowest interest rates on home loans, car loans and anything else you may need a loan for in the future, you’ll need two things: 1.) a high credit score and 2.) an extensive credit history.
It’s actually pretty simple to obtain a high credit score early on – the hard part is maintaining that high score and establishing yourself as a proven credit user. And take it from someone who was shocked to learn that their high score wasn’t going to get them a car loan; credit history and maintaining that score are equally important when it comes to getting approved for a loan and earning the best possible interest rates.
So improving your credit score is as much about responsible spending as it is practicing active credit card usage. The active credit card user that spends frequently, pays back in full and on time each month and has multiple forms of credit accounts is often the one with the highest score.
If you recently pulled your credit score and found that your current rating puts you in the “average” range – under 700, but above 660 – there are ways to improve your score. And if you’re hoping to buy a home or apply for an auto loan in the next year or so, there are ways to improve your score quickly.
Here are a few tips for improving your credit score from average to good and even great in less than a year…
- Make multiple payments on your credit card balance each month and make paying down your debt a priority
The most important factor that determines your credit score is your payment history. The more payments you make each month, the more you improve your payment history. Plus, it helps you to pay down your existing credit debt further and lower the aforementioned credit utilization ratio, so the benefit is two-fold.
If you have a high balance and a low credit limit, consider transferring some or all of that balance to a 0% interest credit card for balance transfers. This will allow you to pay down your debt interest-free, while opening a new line of credit and lowering your credit utilization ratio – that’s a win/win/win by our count. Then again, even if you don’t have a balance to transfer, it’s still a good idea to…
- Add another line of credit by applying for a credit card
Adding another line of credit to your profile is one of the easiest ways to improve your credit score quickly. Opening a new credit card account will boost your score in a number of ways, the first being that it further establishes your credit history and diversifies the types of accounts in your name.
While an initial “hard pull” of your credit taken by the credit card company you’re applying for will ding your score slightly, it’s more than made up for once you establish your payment history with your new card.
However, the most significant way in which a adding a new credit account will improve your score is by lowering your credit utilization ratio. The amounts you owe relative to the total amount of credit in your name makes up close to a third of your FICO score, the most widely-accepted score in America. The less credit you report using to credit bureaus each month (your credit card balance), the lower your credit utilization is and the better off your score it.
OK, so you’re probably thinking, ‘But wait … I thought you said we were supposed to be active credit users?” Well, that’s true – but that doesn’t mean leaving a balance at the end of the month.
One myth about your FICO score (among many) is that you should carry a balance each month. This is NOT TRUE. If you make on-time, in-full payments each month, those payments are reported to the major credit bureaus; you don’t need to carry a balance for them to realize that you’re using your credit card each month. So, make those on-time payments in full each month. In fact…
- Become an authorized user on another account
This one’s a little hit or miss, but it’s one more way that you can bump up your credit score a few points if done correctly. Becoming an authorized user on a credit card account simply amounts to convincing a family member or friend to add your name to their credit card account. You don’t need your own card, you just need the credit that the account is racking up to get attached to your name.
The ideal card to become an authorized user on has a low existing balance and a high limit. It’s also got a responsible account-holder attached to it that you trust would never miss a payment. Remember, the history of the account has no effect on your score – it’s what happens after you become an authorized user that truly matters.
One final way to improve your average score to good or even great is to…
- Comb through your credit report
Your credit report is the story behind your score. We’re each allotted one free report per year, and to search through it could be rather eye-opening. Once you get your hands on your report, look through it carefully to identify inaccurate or negative information.
If you see a debt on there that isn’t yours, write the collection agency or creditor reporting the bad debt to validate; upon receiving your letter, they’ll have 30 days to a.) remove the debt or b.) send you a validation letter. If you’re still not convinced it’s your debt, dispute the debt with the credit reporting agency to have it removed.
Going through your credit report carefully can open up a can of worms, but it’s a crucial tool at your disposal when it comes to identifying how to improve your score quickly.