Your personal credit score is a crucial financial metric that summarizes your borrowing experience. The number of points tells banks, landlords, insurers, and employers how creditworthy you are. Did you know that consumers with “fair” FICO scores (580-669) pay twice as much interest on auto loans, credit cards, student loans, and even mortgages as compared to the “very good” category (740-799)? Rising in the system can help you save around $41,000 over the lifetime of your mortgage. So, what can you do to get to the top?
What Is the Best Score?
Both FICO and VantageScore plot personal scores on a scale from 300 to 850. You do not need 850 points to unlock the best conditions. Lenders do not even price their products for the highest category, so 800 is enough.
Generally, you should have at least 640 to rent an apartment and 610 for a personal loan. Every institution has its own requirements — — for example, an Apple Card may be accessible with 600 points. Consumers who need a boost can get help from credit experts.
The Underlying Logic
To pick the best strategy, you need to understand the scoring logic. Both assessment models consider a similar mix of factors. For example, making payments on time accounts for 35% of FICO and 40% of VantageScore. This is the most influential factor, and even missing the due date once can knock off 100 points from the total. Moreover, all derogatory items stay on the records for 7 years. The only exception is Chapter 7 bankruptcy, which stays for a decade.
The other contributing factors include how much you owe across all accounts (30%), the length of your credit experience (15%), the use of different types of credit, and new accounts (10% each). By tweaking different elements of the calculation, you can get to the number you need. The best credit repair software will help you track and influence the score. However, do not expect overnight results.
Does Your Score Need Fixing?
Credit scores do not always reflect your actual experience, as they may fall due to imperfect reporting. Every lender communicates with one, two, or three bureaus regularly (often, every 30 days). The data they share ends up on the reports, which are used to calculate the rating. In 34% of cases, some of this information is incorrect. For example, late payments you did not miss, bankruptcies that never happened, wrong amounts, or even someone else’s accounts can end up on your file and tarnish it.
The Fair Credit Reporting Act protects your rights by allowing you to dispute any wrong information. This process is quite lengthy, as it requires the collection of the reports, thorough analysis, preparation of evidence, and formal disputes. Unsurprisingly, millions of Americans opt for delegated repair every year. The experts can do everything on your behalf, while you track their progress online through an app or web portal.
This method will only work if the contents are truly erroneous. There is no legal way to remove factual data. If your score has fallen as a result of your own reckless behavior, attempting repair will bring no results. The dispute letter will trigger an investigation, and the bureau will verify the information by communicating with the lending institutions. It will then reject your claim. Here are the top tips to try instead.
1. Reconsider Your Balances
Any credit cards you have contribute to the credit utilization ratio. This is the proportion between the sum of balances and the sum of limits. The lower it is, the better the score. For example, if you have four cards giving you $4,500 in total, you should spend no more than $1,500 across the accounts, according to Experian. Keep your balances as low as possible. If reducing them is not feasible at the moment, you can achieve your goal by working with the other side of the proportion.
2. Get More Credit
The more available credit you have, the lower the ratio, so ask for a limit extension. If this does not work, try getting a credit card from another bank. Secured cards are the easiest to qualify for, as they require a deposit.
3. Ask Friend or Relative for a Favor
No, we do not advise you to borrow from anyone. If you know a person with an excellent credit history, ask them to include you as an authorized user on their credit card account. This way, their limit will work in favor of creditworthiness, as it will push the utilization down. Naturally, you must explain that you do not intend to use their money.
4. Never Miss Due Dates
Even one missed payment will harm your score, so make sure you meet your obligations on time every time. Set reminders or program automatic transfers. Usually, payments are reported as late when they are 30 days overdue. If the delay is shorter, you may ask the lender not to report it. However, they are not obligated to grant your request, and this may only work once or twice provided that your accounts are generally in good standing.
5. Try Experian Boost
This reporting agency lets you include utility bills, subscriptions, and even cell phone payments to your records. This information also reflects creditworthiness, so you will gain more points. On average, you can expect an increase of 12 points. This is not much, but the boost could close the gap between your current status and good credit.
To Sum Up
Bumping your personal credit rating can help you save thousands of dollars annually. This may be done through repair or rebuilding, depending on the accuracy of your credit files. Keep track of your score and take advantage of the free reports. Dispute any wrong information, and be wise with your spending to avoid utilizing too much of the available credit. Finally, you can gain a few points using the free service from Experian.