Credit scores, also known as FICO scores, refer to an individual’s creditworthiness. It simply shows your ability to pay a certain amount of a loan per the agreements with your loan or line of credit issuer. People are differently gifted in terms of financial capability. There is someone who can pay a loan of 1000 USD within two months, while someone else will take even a year to settle the debt. We shall learn about how to increase credit scores quickly.
For your understanding, there are various ways you can increase your scores. Scores are critical when it comes to getting a loan. If you plan to get a bigger loan than what you have been getting in the previous days, then you will need to increase your scores to qualify for the loan. That is why I want to show you how you can grow your scores quickly.
Financial institutions are not like your friends and relatives who may decide to give you any amount of money when in need. They must rely on scientific facts about your ability to pay a loan. The only sure way of determining whether to give you a loan or not is by checking your credit scores from the relevant bodies. Your previous loan repayment patterns will also affect the amount you get as a loan.
Where do you get your scores
For you to plan on how to increase your scores, you must know the total scores you have. Usually, you can get your FICO scores from the credit bureaus. These are bodies entrusted by the government to receive and keep financial records about borrowers. They receive details such as the loan or line of credit given to a borrower, the amount to repay per month, the duration of loan repayments, and the borrower’s details.
We have three main credit bureaus in the United States: Equifax, Experian, and TransUnion. You must have an account with the bureaus to get credit scores from them. Since they receive the exact details about your loans and use the same score calculation, choosing one credit bureau can be helpful. There is a small amount of money you pay to get your scores from the bureaus.
Alternatively, you can get your FICO scores from your bank or credit union. We have financial companies that offer free scores if you have an account with them. You can either get them online once you login into your online account or call customer care, who will give you the scores.
Also, we have financial firms that issue free credit scores. A good example is Credit Karma which gives free scores from Experian. You need to create an online account with the platform to get started. Checking your scores does not harm your scores whatsoever.
How are FICO scores calculated
Credit scores range from 300-850. 300 represents the worst scores, while 850 represents excellent. We have Bad, Fair, Good, and Excellent credit scores.
Credit bureaus use a particular format to calculate your scores. They collect various information from the lenders to determine your overall scores, including the following.
i) Payment history
The payment history shows how you have been paying your loans and lines of credit in the past. The history contributes 35% of your entire FICO score.
ii) The amount owed
The amount owed is the number of loans you have not paid to the lenders. The portion contributes 30% of your scores.
iii) The length of your borrowing history
If you have a lengthy history of using loans and repaying well, that also contributes to your scores. 15% of your overall scores go to your credit history.
iv) New credit
New credit contributes 10% of your scores. If you get a lot of credit within a short time, then a portion of your 10% will be affected. The less new credit, the more your scores.
v) Credit mix
It is wise to mix your credit because it increases your scores. If you get various types of credits, you will contribute 10% of your entire credit score.
How to increase credit scores quickly
If you want to increase your scores quickly, you must consider the various ways to help you meet such an objective. They include the following.
1) Pay all your debts
Debts can pull you down very quickly. Suppose you have unpaid debts with various financial institutions. In that case, you must repay them first to have your name cleared from the list of defaulters. That will boost your scores rapidly.
2) Get several types of credits
That is what I have just referred to as credit mix. You can get several types of credits, such as auto loans, mortgage loans, student loans, personal loans, and so on. The various types of credit can boost your scores within a short time.
3) Utilize at most 35% of your credit limit
You should ensure you do not use too much of your credit. Financial experts recommend that you stick to spending at most 35% of your overall scores. Using too much of your limit shows that you are a risky borrower.
4) Pay bills on time
Apart from paying all your debts, you should also focus on paying your recurrent bills on time. That way, you can register a good reputation for your bill repayment.
5) Dispute your credit errors
You might have bad scores because of some errors in your report. If you dispute errors successfully, you can quickly raise your scores. Some financial companies may report errors concerning your loans and lines of credit.
6) Become an authorized user
Become an official user of a particular credit card for a person with good-excellent scores. You will be able to see an increase in your scores with time. However, you should make payments on time.
7) Use a secured credit card
A secured credit card allows one to deposit some money as security to get the card. The card allows you to grow your scores as you use it. You can see an improvement in your scores within six months.
Bottom line
Credit scores show the creditworthiness of a borrower. The scores range from 300-850, with 300 representing the worst scores and 850 for the excellent ones. The better you use your line of credit or loans, the better your scores. You need good scores to get large loans from financial companies. You can get your scores from credit bureaus, financial services providers, or firms such as Credit Karma.
