Chances are at least once in your lifetime you’ll need to have a pristine credit score – to get a better deal or just access to some financing options that are reserved for people with great credit score.
What if you need to repair your bad credit in just few months?
Here are some tactics to use if you want to raise your credit score in under 6 months:
Check your credit report
You cannot make any improvements in your credit score, if you don’t know exactly where you ‘sit’ right now. There might be some errors in your credit report, some in your advantage and some not. No matter what errors you find, it’s important to find them and dispute them with the credit bureau.
Automate payments or set reminders
Most of us get into trouble not because we don’t have money in our accounts, but because we just forget to make the payments.
It’s something I personally struggle for years on some of my bills that cannot be automated (company taxes for instance, which fluctuate every month). Even if my accountant is sending me the correct numbers and all I have to do is log into my firm’s bank account to make the payments, I sometimes just forget about this.
If you cannot set automatic payments for your bills, at least set some reminders.
Paying on time DOES have a big effect on your credit score (your payment history makes up 35% of your FICO Score), so make it a habit to never miss or delay a payment ever again.
Once your payments are on time, keep them like this
A great way to improve your credit score is to be on time with your payments from now on.
As time goes by, your past credit problems on your FICO Scores tend to fade and all the payments you made on time will start showing, so this is a good reason to nevet be late again.
Pay off debt strategically
In order to quickly improve our credit score, you should try to pay off the HIGHER balance credit cards. These have the biggest impact on your credit score.
30 percent of your score is based on the amount you owe. But wait, it’s more complicated: it’s how much you owe compared to how much credit you have (credit utilization ratio): if you have a $10,000 credit limit, try to keep your credit utilization ratio to under 30%, so don’t spend more than $3,000.
This goes against what some financial advisers say: use your credit cards as much as you can and pay on time, since a high credit utilization ratio will mark you down as a ‘spender’ and negatively affect your credit score.
Pay it twice a month
Creditors report balances to the credit bureaus once a month, so, if you have a big balance on a monthly basis, it looks like you’re overusing your credit. For example, you are using a credit card with a $3,000 limit for most of your payments. So you hit this $3,000 limit, but you also pay it off on time.
You are not safe, because the credit card company is reporting the balance each month: $3,000 limit and the same amount as a balance. Which means your credit utilization ratio is 100%.
A high utilization ratio will affect your credit score in a negative way, so it’s a good idea to 1. not use your credit card for all purchases and 2. try to pay it off twice a month.
Increase your credit limit
This is pretty sneaky and can backfire ugly: if you cannot lower your credit utilization ratio by paying your balance in full, you can try to increase your credit limit.
Say you have maxed out your credit card, but are able to double your credit limit (say you go from $2,000 to $4,000). This means you’ve just halved your credit utilization ratio.
Beware: don’t spend any of this new credit or you’ll be in a bigger trouble.