While there’s no overnight solution to better credit, the following tips can serve as a great foundation for better financial habits that can yield impressive results. If your credit score is in need of a boost, there’s no definitive credit hack to boost your score overnight.
Building better credit is a marathon, not a sprint. However, these 10 strategies can help you build credit and make your way to a score you’ll be proud to show off.
An authorized user is just what it sounds like: someone who is authorized to use another person’s credit card. If the credit card is in good standing — with monthly payments being made on time — it can help boost the authorized user’s credit.
But unlike a joint account holder, the authorized user does not share any responsibility for making payments. That obligation falls solely to the cardholder, so it is important that you trust someone before allowing them to become an authorized user on your account.
On the plus side, an authorized user can help you keep a card you rarely use active, so the lender doesn’t close the account. It can also make it easier for someone else, such as a partner, spouse, or adult child to make purchases using your card — which might not be accepted if their name isn’t on the account.
Ultimately, an authorized user can help your credit by keeping old accounts you don’t use in good standing, but be sure to only make someone an authorized user if you trust them. An authorized user’s purchases might hurt your overall credit utilization ratio, one of the key factors in determining your FICO® score.
If you want to become an authorized user on someone else’s card, you’ll need to get approval from the cardholder and the card issuer. An application can often be made over the phone or via the credit card issuer’s website. The card may be sent to the primary cardholder’s address, although some companies may allow an option to send it to a different address upon request.
Maintaining a high credit card balance can hurt you because the more debt you carry, the more interest accrues — which can make it harder to pay down your balance and cost you more money in the long run.
This can also increase your credit utilization ratio, which can hurt your credit score. Your credit utilization ratio is the amount you owe on all your credit cards divided by your total credit limit. The higher it is, the more it can negatively affect your credit score, and it counts for 30% of your total under the FICO system. FICO’s is the score most commonly used by creditors in making lending decisions.
The 15/3 method involves making two payments on your credit card each month, rather than just one. Its name is derived from the way you count backward to determine when you make a payment.
First, you count back 15 days from your payment due date and pay half of what’s due then. Then, count back three days before your due date and pay the remaining balance that’s due. This strategy is beneficial for people who are paid bi-monthly, as it allows you to take money out of both paychecks to pay down existing debt.
The 15/3 payment hack also gives you room to gather more money that can be used toward paying down your credit cards. However, if you’ve got room in your budget to make two payments a month, this hack can be handy for anyone.
Simply making more than one payment in a month will not lower your credit score on its own. But making payments before your due date will lower your credit utilization ratio, which can boost your credit score.
If you can’t pay off your entire credit card bill, the “repayment by purchase” strategy suggests that you make payments toward specific purchases you’ve made. This allows you to better understand how you are spending your money and feel more empowered because you are paying off entire purchases rather than feeling overwhelmed by a large total balance.
Some card issuers offer creative ways to pay, such as the Pay It Plan It option from American Express. Under this system, you split up larger purchases over time without interest and instead pay a monthly fee. You can choose as many as 10 purchases of $100 or more that can be combined into a plan you access via your online account.
Keeping old accounts open can help your credit score in part because the length of your credit history accounts for 15% of your FICO score. This includes factors such as the age of your oldest account, how long your newest account has been open, and the average age of all your credit accounts.
Additionally, these accounts positively contribute to your credit utilization ratio (CUR), which in turn helps your credit score. If you have an overall credit balance of $500 on three cards with a total credit limit of $4,000, and close one card with a zero balance on a $2,000 limit, your credit utilization rate will double.
If you have yet to build credit or need to rebuild it after a financial setback, a secured credit card can help you do that.
Credit comes in two forms: secured and unsecured. Unsecured lines of credit do not require any collateral as a guarantee that you will repay. Secured lines of credit do. A car loan is a secured loan because the lender can repossess your car if you fail to make your payments. A mortgage works the same way.
Credit cards typically offer unsecured lines of credit. A lender approves your card application based on your credit score and other factors, rather than based on any collateral.
A secured credit card is a credit card that is linked to a bank account. You simply deposit a few hundred dollars as a guarantee, which is not touched unless you fail to make a payment. The idea is that you do make payments and build credit by doing so.
This is one of the best ways of building credit because your payment history makes up 35% of your FICO score — more than any other single factor.
Your credit utilization is a key component of your credit score. It is obtained by a simple formula: adding up the balance on all your credit cards and dividing that figure by the sum of all your credit card limits.
Because it counts for nearly one-third (30%) of your FICO score, lowering your credit utilization can be a powerful tool in raising your credit score. If you want to maintain good credit, experts recommend that you keep your credit utilization rate below 30%. In order to achieve great credit, however, experts suggest an ideal credit utilization ratio at or below 10%.
In addition to keeping your balance significantly lower than your credit limit, you can boost your CUR by requesting a credit limit increase or opening a new credit card account (and thereby increasing your total credit limit if the card is used responsibly).
It is helpful to remember that applying for too much new credit in a short period of time can reduce your credit score. Each new account application, known as a hard inquiry, has a small negative effect on your credit score. Recent activity counts for 10% of your FICO credit score.
A revolving credit account allows you to use as much credit as you want, for whatever you want, up to a set credit limit. You can increase your available credit by making payments to lower your balance. The higher your balance, the higher your minimum credit card bill payment, which is calculated based on a percentage of the total you owe.
This contrasts with an installment loan, in which you borrow a specific amount and then pay it off. Payments are typically the same from month to month, and once you make the final payment, you don’t owe any more money. If you want more credit, you will need to apply for a separate loan.
A revolving balance is the unpaid portion of your credit card account that carries over from one month to the next if you don’t pay your balance in full.
With revolving credit, the higher your balance goes, the more interest you incur, which means you will have to make larger payments to reduce that balance. This is one reason it’s a good idea to make more than the minimum payment, especially if you are continuing to use your card for purchases.
Monitoring these accounts will help you make manageable payments on time and keep your credit utilization ratio in check.
Because your payment history counts for the largest share of your FICO score, making your payments on time is key. You have 30 days from your statement date (one billing cycle) to make a payment before it is counted as late on your credit report. If it remains delinquent for 60 or 90 days, it will affect your score negatively each time.
A late payment stays on your credit report for seven years. Although its impact will diminish over time, it is better to avoid damaging your credit score by staying on top of your payments. Scheduling automatic payments, which many vendors and banks facilitate, is a good way of ensuring you stay current on your payments.
Having a good mix of different kinds of credit can boost your credit score by showing lenders that you can be responsible with several different types of accounts. In fact, your credit mix counts for 10% of your FICO score.
A good mix of credit includes both revolving credit — such as credit cards and home equity lines of credit (HELOC) — and installment loans like car loans, mortgages, and student loans. Payday and title loans do not factor into your credit mix, but failure to pay them can hurt your credit score if they are sold to collections agencies.
Credit reports aren’t perfect. In fact, they often contain inaccurate information that can damage your credit score. In a Consumer Reports study, 34% of volunteers found at least one error on their credit reports, and 29% found errors relating to their personal information.
If someone else with bad credit has a similar name or Social Security number and negative marks from their credit are accidentally included in your credit history, your credit score can suffer. Other errors include incorrect balances, failure to include updated information on payments you have made, and multiple listings of the same debt.
The first step to determining whether you may have inaccurate information on your credit history is ordering a free credit report. You are entitled to do so each year under federal law. Look for any inaccurate information, including charges you don’t recognize that may be the result of fraud.
If you determine that an error has been made, you will want to gather documentation supporting what you’ve found. This can include letters from creditors showing how the account should be corrected, canceled checks showing that you have paid what is owed, or (in the case of fraud) a police report or FTC Identity Theft report.
You can file a dispute online, by phone, or by mail with the three credit bureaus, attaching any pertinent documents to support your claim. You will want to include your name and contact information, the item(s) you are disputing, and the reason(s) why you are filing the dispute.
If one of your accounts has gone to collections, it means your original lender has given up trying to collect a debt from you (called a “charge-off”) and sold it to a collections agency. That agency then takes over attempting to collect the debt. This usually happens after repeated missed payments, often adding up to a period of 120 to 180 days in delinquency.
You can try to get a charge-off removed from your credit report in several ways. If it’s inaccurate, you can dispute it with the credit bureaus. If not, you can negotiate a payment plan (you might be able to get a lower settlement by paying a lump sum).
Once you’ve resolved the debt, you can ask the collections agency to remove it from your credit report under a “pay for delete” agreement. The agency may or may not be willing to do so. Other options include asking them to change the status to “paid” or “closed,” or “settled” — the least attractive option since it indicates only partial payment.
There are no quick-fix solutions, and that includes hiring a credit repair company. A credit repair company can only remove items from your credit report if they’re inaccurate, unfair, or unverified. You can do this yourself for free by disputing errors and suspected fraud, as mentioned above. But if you are uncomfortable handling this process yourself, a reputable credit repair company is an option.
Under the Credit Repair Organizations Act, credit repair companies aren’t allowed to make false statements to credit bureaus, charge fees for services that they haven’t yet provided, guarantee removal of negative items, or ask you to change your identification number.
Using a credit repair company isn’t technically a hack or magic pill. If the company is legitimate, it can only facilitate removing inaccurate marks from your credit report.
If you find a series of complex errors in your credit report, it may be worth it to engage the services of a credit repair company. Such a company will have more resources at its disposal to deal with complicated issues and may be able to succeed in resolving problems that you have been unable to resolve yourself.
Credit repair companies can also provide credit counseling to help you improve your money management skills, create a manageable budget, and break bad financial habits.
On the flip side, they do cost money, and some are scams. Check with the Better Business Bureau site and other online reviews to ensure you are dealing with a reputable company.
Any credit repair company that promises a “new credit identity” and asks you to purchase a nine-digit number to use in lieu of your Social Security number (often referred to as an Employer Identification Number or Credit Profile/Privacy Number) is probably operating a scam. These numbers are often recycled or stolen Social Security numbers, and selling or using them is a federal crime.
FICO credit scores are divided into five categories defined by numerical ranges:
More generally, good credit is anything 650 or above. You will not get there overnight; building credit is a process, not something that can be instantly hacked to improve.
A good place to start is knowing where you stand. You can check your credit score in several ways. You can buy your FICO score, obtain a free credit report (credit bureaus offer their own educational scores that are similar but not identical to FICO’s number), ask whether a credit counseling service can provide one, or sign up with Self Lender’s free credit monitoring tool, which gives you access to Experian’s VantageScore 3.0 model.
Although the FICO system is the one lenders use most frequently, it’s not the only one. VantageScore, mentioned above, is another system that is often used. Credit bureaus and some financial websites provide their own models, too.
The credit hacks discussed here may seem easy, but that doesn’t mean they are quick. Building credit takes time and vigilance. It’s important to stay on top of your credit reports and understand your credit score if you want to improve your chances of being approved for loans — and if you want to save money by getting the best rates.
Building good financial habits like making your payments on time, paying down high balances, and keeping your credit utilization low are the best ways to keep your credit in good shape so you will have it for a rainy day and to make the purchases you need.
Jeff Smith is the VP of Marketing at Self Financial. See his profile on LinkedIn.
Ana Gonzalez-Ribeiro, MBA, AFC® is an Accredited Financial Counselor® and a Bilingual Personal Finance Writer and Educator dedicated to helping populations that need financial literacy and counseling. Her informative articles have been published in various news outlets and websites including Huffington Post, Fidelity, Fox Business News, MSN and Yahoo Finance. She also founded the personal financial and motivational site www.AcetheJourney.com and translated into Spanish the book, Financial Advice for Blue Collar America by Kathryn B. Hauer, CFP. Ana teaches Spanish or English personal finance courses on behalf of the W!SE (Working In Support of Education) program has taught workshops for nonprofits in NYC.