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 lift, there are no definitive credit hacks to lift 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 access another person’s card, usually a family member or close friend, by obtaining an additional credit card under the friend or family member’s credit account and credit limit. If the credit card is in good standing — with monthly payments being made on time and low credit utilization rates— it may help better the authorized user’s credit.
But unlike a joint account holder, the authorized user does not share any responsibility for making payments. That debt obligation falls solely to the primary cardholder, so it is important that you trust someone before allowing them to become an authorized user of 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 young adult child to make purchases using your card — which might not be accepted if their name isn’t on the account.
Be sure to only make someone an authorized user if you trust them because you are responsible for the account and they could charge a number of high price items on your account which you would be responsible to pay. An authorized user’s purchases might also hurt your overall credit utilization ratio, one of the key factors in determining your FICO® score.
A credit card company is not obligated to report an authorized user’s activity to the three main credit bureaus (Equifax, Experian, and TransUnion). Nevertheless, some credit card companies may report on their bureaus as well. If you are trying to help them establish a credit score or better their score, you should check with your credit card company to make sure they do.
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.
According to the 2019 Experian Consumer Credit Review the average American has four credit cards. You may benefit from four credit cards with different reward programs and four distinct credit limits, you also could be tempted to overspend. Maintaining a high credit card balance on one or all of the cards 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 many cards may also increase your credit utilization ratio (CUR), which can potentially hurt your credit score. Your credit utilization ratio is the amount you owe on multiple credit cards added up and divided by your total credit limit across all of the cards. Financial experts recommend keeping your CUR under 30%. The higher it is, the more it can negatively affect your personal credit score, and it is a factor under amounts owed that counts for 30% of your total credit score under the FICO system. According to FICO, FICO’s score is used by 90% of the top lenders in making lending decisions.
Making payments before your credit card closing date can lower your credit utilization ratio, which may help your credit score. This is because credit reporting generally occurs after your due date. A lower reported balance means a lower credit utilization ratio. Keep in mind you could be giving up your credit card grace period and it's most important to show the credit bureau that you’re making your payments on-time by your due date.
If that's not an option, you may want to explore repayment plans offered by your credit card issuer.
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.
You need to carefully evaluate the fee and determine what the equivalent interest rate may be, if you use this option. Some programs have costly fees that could exceed the interest rate on the card. 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 specific purchases over a set period rather than feeling overwhelmed by a large total balance.
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.
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. 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 in a similar 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 savings account or a certificate of deposit (CD). You deposit a few hundred dollars as collateral, which is not touched unless you fail to make a payment. The idea is that by making on-time payments you build credit. Your credit limit is usually set based on the depositied into your secure savings account or CD.
Making on-time payments on your secured card is a good way to build 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 personal 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 credit inquiry or simply, hard inquiry, can have a small temporary 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 over a set period of agreed upon time. 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 may help ensure you have the funds to make on-time payments 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 need to make your payments consistently by the due date or you will be considered late. While you may not be automatically reported late to the credit bureaus your lender may charge you a late fee and potentially increase your APR on a credit card. Typically, lenders will not report you late on your credit report until you are over 30 days late. If it remains delinquent for 60 or 90 days, it will have an even greater negative impact to your credit score.
A late payment can stay on your credit report for up to 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 creditors and lenders facilitate, is a good way of ensuring you stay current on your payments.
Having a good mix of different kinds of credit may have a positive impact on 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.
There are three major credit reporting companies – Equifax , Experian , and TransUnion. You can get a free copy of your credit report once per year from all three companies at annualcreditreport.com.
Look for any inaccurate information, including charges you don’t recognize that may be the result of identity theft or 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.
To learn more about disputing errors in your credit reports, the Federal Trade Commission (FTC) provides helpful information to follow.
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 (like credit card debt), which can be from a credit card, installment loan or past due utility bill. 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. You can use the FTC information shared above to dispute the charge-off.
If it is accurate and you now have the funds to pay it off, you may want to send a pay for delete letter to the collection agency. The agency may or may not be willing to remove the charge-off for payment on the account. They also may take the money and still report your delinquency so be sure to get something in writing. You may also be able to negotiate a payment plan (you might be able to get a lower settlement by paying a lump sum).
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, 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 tax identification number.
Using a credit repair company isn’t technically a credit hack or a magic pill. Remember credit repair companies can only facilitate removing inaccurate marks from your credit report, not accurate. If the credit repair company promises easy fixes, you may want to consider alternative options.
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.
On the flip side, they do cost money. 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. FICO does provide plans to allow you to monitor your score. Some free options also exist. You can call your credit card company and see if they offer free credit scores, contact a non-profit credit counseling service that may offer free credit report counseling, or sign up with Self’s free credit monitoring tool, which gives you access to Experian’s VantageScore 3.0 model. While your FICO and Vantagescore may differ slightly they are a good gauge of where you stand generally and a good way to monitor where you stand.
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 provide their own models, too.
Created by the Fair Isaac Corporation in 1956, according to FICO it is used by 90% of top lenders. It gives payment history the most weight in determining its credit score, followed by credit utilization, length of credit history, new credit, and your credit mix. FICO has multiple credit scoring versions that have been updated periodically for different types of loans like mortgages, auto lending, and credit cards.
VantageScore® is an alternative system to FICO created in 2006 that uses the same 300-850 range as FICO but calculates its score differently and uses slightly different rating categories. VantageScore weighs total credit usage, balance, and available credit most highly, followed by credit mix and experience, payment history, age of credit history, and new accounts.
Each credit hack discussed here is not an easy or quick fix. 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 financial health and improve your credit score to qualify for better interest rates that save you money over the long term.
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.
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.