There is no magical trick to transform your credit overnight. Earning a great credit score takes time, patience, and discipline, but there are several hacks you can use to make reaching your credit goals a little faster and easier. This article covers some of the helpful tips and expert tactics that can boost your credit score.
Written by Attorney Paige Hooper.
Updated September 3, 2021
The term “life hack” dates back to 2004 when tech writer Danny O’Brien used the phrase to describe the helpful shortcuts IT professionals used to be more productive at work. By contrast, when the word “hack” is associated with computers and databases, it has evolved to mean doing something that circumvents the rules.
“Credit hack” is often used in both ways. The internet is full of unscrupulous people and companies offering to hack your credit by somehow circumventing the rules. Unfortunately, these types of too-good-to-be-true offers are usually just scams. There is no magical trick to transform your credit overnight. But, like O’Brien’s tech tips, there are several hacks you can use to improve your credit. This article covers some of the helpful tips and expert tactics that can boost your credit score.
Credit Score and Credit Report
Your credit report is a comprehensive statement of your financial accounts and activity during the past 7-10 years, condensed for easy skimming by lenders. It contains information about your credit accounts, payment history, public records, and collection activity. Your credit score, on the other hand, is a three-digit number that lenders use to estimate how likely you are to repay a potential debt. Credit scores generally range from 300 (the worst) to 850 (the best).
Credit Scoring Models
The information in your credit report is collected and cataloged by three major credit reporting bureaus: TransUnion, Experian, and Equifax. Each bureau maintains its own financial records and generates its own credit reports. Credit reports were created to give lenders a convenient way to access and review your financial history. Credit scores take that concept a step further. Lenders use credit scoring software programs, called scoring models, which use the information in your credit report to calculate your credit score.
FICO and VantageScore are the most popular credit scoring companies in the U.S. today. The FICO score is the preferred scoring option for most lenders.
Your Credit Matters
Your credit score helps lenders determine how much you’ll pay for credit, including interest rates, down payment amounts, and other financing charges. But lenders aren’t the only ones who use your credit score. Utility companies and phone service providers use your score to determine whether you must pay a deposit. Some property owners check your score before leasing you a rental home, and some employers use your credit score in deciding whether to offer you a job.
A good credit score can save you a lot of money and help you reach your goals, while bad credit can severely limit your opportunities. Taking action to improve your credit score is almost always worth the effort.
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Hacks To Improve Your Credit Score
In general, increasing your credit score requires you to plan carefully, make decisions thoughtfully, and take the appropriate action. While there are no true shortcuts to excellent credit, there are time-saving hacks that can help you reach your credit goals sooner. Of course, everyone’s credit is different. If you have complex credit issues that don’t seem to fit within the traditional credit repair framework or you just feel overwhelmed, you may want to seek professional advice from a certified credit counselor.
Pay All Your Bills on Time
Ask any expert the key to a high credit score, and they’ll likely tell you it’s always paying your bills on time. Your payment history — your record of paying your bills on time or late — is the most important credit scoring factor. Payment history accounts for 35% of your FICO score.
Late payments stay on your credit report for seven years. As a result, even one late payment can take a serious toll on your credit score. Make sure you never miss a payment by setting up automatic payments on your credit accounts. For debts without an autopay option, you may be able to set up automatic bill payments through your checking account.
Credit reporting agencies are legally required to maintain accurate credit data, but they’re not perfect. Finding errors on your credit report is surprisingly common. The information in your credit report is used to determine your credit score, so it’s vital to be sure that the data in your report is correct. One falsely reported negative item could damage your score for years and cost you a lot of money in the meantime. Not surprisingly, consumers who regularly monitor their credit tend to have higher credit scores.
You can review all three of your credit reports for free once every 12 months (or once every week through April 2022). If you spot an error in your report, you can file a dispute with the appropriate credit bureau. Each of the three credit bureaus has a free dispute process that you can access on the bureau’s website. When you dispute an item, the credit bureau asks the creditor that reported the item to verify its accuracy. If the creditor can’t verify the disputed item, the credit bureau will remove it from your report.
Optimize Your Credit Utilization
Another key factor in calculating your credit score is your credit utilization ratio, sometimes called your credit utilization rate. Your utilization ratio tells lenders what percentage of your available credit you’re currently using or how close you are to maxing out your credit limit. To calculate your utilization ratio for an account, divide your current balance by your spending limit. Multiply the result by 100 to see this as a percentage. Keeping your credit utilization ratio low —around 30% or lower — will improve your credit score.
Paying your credit card balances in full each month keeps your utilization ratio low and prevents you from having to pay interest charges. Despite popular belief, carrying a balance won’t increase your credit score. Try to avoid spending more than 30% of your credit limit, especially if you might have trouble paying the full balance. Pay down balances that are close to your credit limits.
In addition to paying down balances, another way to quickly improve your credit utilization ratio is to request a credit limit increase from your credit card company. Be careful, though: A higher credit limit can easily seem like an invitation to spend more. Watch your spending habits closely to avoid going deeper into debt.
Add Rental Information to Your Credit Files
Traditionally, credit reports and scoring models have contained account data and payment records for debts but not for ongoing expenses. For example, a mortgage (a debt with a balance and an interest rate) is usually included, while rent (a recurring expense) is not. As a result, people who pay their mortgages on time each month see their credit scores increase, but people who pay their rent on time each month do not.
In recent years, rent reporting services have emerged as a potential solution to this problem. Today, there are a growing number of services you can use to report your rent payments to the credit bureaus. Rental Kharma, Esusu Rent, and LevelCredit are examples of reporting services. Some reporting services, such as Experian RentBureau or PayYourRent, are only available to landlords or property managers.
Reporting your rent allows you to document your history of paying on time and to include that history in calculating your credit score. More on-time payments typically mean a higher score.
Diversify Your Credit Mix
From a credit reporting standpoint, there are two main types of credit accounts: revolving accounts and installment accounts. With revolving credit accounts, you borrow and repay money as you need it, up to a certain credit limit. Credit cards, including general-use cards, retail (or store-specific) cards, and fuel cards, are examples of revolving accounts. With installment accounts, by contrast, you borrow a fixed amount of money, then repay that amount in installments. Auto loans, mortgages, and student loans are examples of installment accounts.
Successfully maintaining an installment account usually requires making a relatively long-term commitment and being able to consistently pay a fixed amount each month. Successfully maintaining a revolving account requires disciplined spending habits — like not maxing out your card — and the ability to navigate flexible payment terms.
Having both types of accounts in your credit history demonstrates that you have a well-rounded set of financial skills. A good credit mix containing both types of accounts will increase your credit score, provided you pay those accounts on time.
Become an Authorized User
Being an authorized user on someone else’s credit card account means that you can legally use that account to make purchases, but only the primary account holder is responsible for paying the debt. When the primary account holder adds you as an authorized user, all the past and future data about the account is added to your credit file. Becoming an authorized user can instantly beef up your credit by adding months or years of payments to your payment history. Becoming an authorized user can also help you diversify your credit mix and potentially improve your credit utilization ratio, all without taking on any new credit card debt yourself.
Keep in mind, though, that most of the potential advantages or disadvantages of using this strategy hinge on the primary account holder’s behavior, so take care to choose someone with excellent credit habits. If the primary account holder misses any payments or maxes out the card, those actions will become a part of your credit history as well.
Make More Than One Payment Each Month
Making more than one payment each month, particularly on credit card accounts, is an easy way to improve your credit. Credit card issuers typically report account activity to the credit bureaus on or around your statement date. Making a payment before your statement is prepared, even if it’s not the full payment amount, reduces the account balance reported for that billing cycle. A lower balance means a better credit utilization ratio, which increases your credit score.
Get the Old Debt Off Your Credit Report
If your credit report contains negative entries, such as charge-offs or collection accounts, the good news is that they don’t last forever. By law, collection accounts must be removed from your credit report after seven years and charge-offs after seven and a half. Even so, old debts sometimes linger on your credit report. As long as a negative account remains on your report, it continues to lower your credit score.
To remove an account from your credit report, notify the relevant credit bureau by following the dispute procedure on that bureau’s website. You may need to provide information about the account and the age of the debt. Usually, the credit bureau will remove the old debt within 30 days after you submit your dispute.
Consider a Credit Builder Loan
A credit builder loan, as the name implies, is a type of loan designed to help people with bad or nonexistent credit build some positive credit history. They’re usually offered by smaller community banks and credit unions. When you take out a credit builder loan, the bank agrees to loan you a sum of money. The bank doesn’t give you the money, though. Instead, it deposits the money into a savings account. You pay the loan over a fixed period, and the bank reports your monthly payments to the credit bureaus. When you’ve paid off the loan balance, the bank gives you the loan money.
If you don’t qualify for other types of loans, a credit builder loan can be a good starting point. A credit builder loan provides an opportunity to add a positive account and some payment history to your credit report. It also allows you to build credit while building savings at the same time.
Earning a great credit score takes time, patience, and discipline, but there are ways to make reaching your credit goals a little faster and easier. Understanding what information is contained in your credit report and how that information is used to calculate your credit score is an important first step. This knowledge will help you take actions that will ultimately increase your credit score.
Having a good payment history is key to building good credit. Rent payments, credit builder loans, and authorized user accounts are all ways to add to the payment history on your credit report, which can increase your score. Being mindful of your credit mix and utilization ratio can help you make smart credit choices. Finally, watching your credit reports for errors and old debts will help protect your rising credit score.