How to Improve Your Credit Score – Fast!
Although the exact algorithm used to calculate a FICO credit score isn’t available to the public, we do know that the scores are based on the following factors:
- 35% - Payment History (Positive and Negative Payment Notations)
- 30% - Amounts Owed (Utilization Rate)
- 15% - Length of Credit History
- 10% - Mix of Credit (Installment Loans, Revolving Debts, Credit Cards, Car Loans, Mortgages, Etc…)
- 10 % - New Credit Accounts
In today’s article, we are focusing on the 30% of the credit score that is calculated based on how much you owe on an account, such as a credit card, as compared to the account’s available credit limit, also known as the “utilization rate”. A healthy utilization rate is rewarded with a strengthened credit profile. When a person improves their credit utilization, an increased credit score can been achieved rather quickly.
How Fast Can This Strategy Fix My Bad Credit Score?
When successful, the strategies that I will share with you can help improve your credit score in as little as 30 days. By adjusting your credit utilization amounts accordingly, the creditors will consequently report the updates to the credit bureaus, usually within a 30-day cycle, at which time the credit score will reflect the healthier credit usage.
To calculate your utilization rate on a particular card, take the balance and divide it by the credit limit. For example, if you owe $4000 on a credit card with a $5000 limit, the rate of utilization would be 80% (calculated by dividing $4000 by $5000). 80% would be considered a very high utilization rate, and may indicate to creditors that the borrower might be experiencing financial distress.
Optimally, a borrower should be keeping their credit card balances under 50% of the available limit, and even less when possible.
There are two methods that our credit lawyers recommend to quickly adjust credit utilization:
- Pay down your balances. For example, if you owe $4000 on a card with a $5000 limit, but you pay down $2000, so that only $2000 is revolving monthly, you would effectively reduce the utilization rate from 80% to 40%. This can have quite a positive effect on one’s credit score.
- Call the creditor and ask them if your account qualifies for an increased credit limit. Keep in mind, some creditors may pull a hard inquiry on your credit report to consider a credit card limit increase. However, increasing your limit can quickly improve your utilization rate and increase your credit score - for free! So it might very well be worth trying, even if it comes with an inquiry.
The chances of being approved for a credit limit increase improve if you have made on time payments for at least the prior 6 to 12 months, and have not requested a limit increase recently.
Quick Credit Tip - While you’re on the phone with the credit issuer requesting the increase in credit lines, you may also ask for your accounts to be reviewed for an interest rate reduction. Although the interest rates will not directly affect the credit score, obtaining a lower interest rate is one of the most efficient ways to slow the growth of revolving credit card debt.
Need help fixing a bad credit score?
You can depend on our credit lawyers for reliable assistance and advice for disputing incorrect credit notations and increasing low credit scores. Contact us at 877-717-0098 for a free evaluation. Get in touch with the New York Law Office of Simon Goldenberg PLLC to schedule your complimentary initial case consultation.