Boost Your Credit Score Fast

You heard many people talk about credit scores and how important they are right? What’s up with them? Why is it that important? And even if you know that it is important, how can I improve it? You will find out here'

What are credit scores and why do you need them?

A credit score is a scale that measures how credit worthy each person is, in simple words, it’s a tool for institutions to see how well people pay back their debt. For you personally it might only be a tool to get a loan, but it goes beyond banks and them lending you money. What many people don’t know is that it’s used by many institutions. So, the following things are affected by your credit score:

- Getting a loan or credit card

- The rate you pay on a loan

- The insurance premium or coverage you pay/give

- Depending on the job, some employers can check new hires credit score as a measure for responsibility

- Utility companies can force you to pay a deposit if you have a bad score

- Landlords may refuse you based on your credit scores

- Debt collectors use your address and employer information to collect debt from you

- Publics assistance from government agencies, like child support

- Any entity with a court order can get your credit report and score

Other than that, nobody can pull your credit score or report just off the internet.

In your credit report you can see who has been inquiring your credit score, so keep track of that.

When going to ask for a loan, you should ask your lender which credit score they look at. In any case you should make sure you are good at both credit scores.

Type of Credit Scores

So, it’s very important, but what type of credit scores are there? This score is used everywhere around the world and most countries have similar ways of calculating it. In the US, there are two type of credit scores, the FICO (Fair Isaac Corporation) and Vantage score.

1) Developed in 1989, The FICO score is the more well known and standard. It has several versions, of which FICO 8 is the most widely used. UltraFICO is for people with new credit. Both range from 300-850.

2) VantageScore: there are several versions of this score, but the most popular is the VantageScore 3.0 (released in 2013), because it makes it easier to calculate scores with limited credit history (even though VantageScore 4.0 was released more recently in 2017). This score ranges from 300-850 and takes into account the following factors.

Comparing FICO to VantageScore, we can say that

- VantageScore was developed by all 3 credit bureaus, while FICO is bureau specific (more on that later). This means you only have one VantageScore, while your FICO score at the 3 credit bureasu might differ.

- A good FICO score is 670, while VantageScore has a “good” threshold of 700 (although the definition of good is subjective).

- Scoring factors are similar, but some weights of categories differ, like payments history accounts for 35% of FICO, while 40% of VantageScore.

The most well-known and used is the FICO score, especially for Home Mortgages.

What are credit bureaus?

While there are two types of credit scores, there are 3 credit bureaus in the US that take all your financial information and calculate the FICO and VantageScores, these are Equifax, Experian and TransUnionr.

Many banks provide your credit score for free, like banks providing your score on your credit card statement or Discover, who is trying to provide free FICO scores for everyone.

You can also pay on FICO or VantageScore’s own website to get a particular credit score.

Also you can access other website who provide you credit scores for free. Each country has its own credit score in general. See the following:

· UK: Experian, Equifax, CallCredit (Credit Reference Agencies)

· US: Experian, Equifax, TransUnion (Credit Bureau)

· Australia: Experian, Equifax, Dun and Bradstreet and Tasmanian Collection Service

· India: Credit Bureau Information India (CIBIL), a TransUnion partner

Improving your credit score

So as we have seen the credit score mainly consists of 6 areas: payment history, length of your credit history, percentage of credit limit used, total balance and the mix of types of credit, recent credit behavior and available credit.

Here the biggest factor is paying on time while the second most important factor is your credit utilization.

Not all of them are as effective as the other, but out of the many ways, here are the 5 most quick and effective improvement you can make.

1) Pay bills on time: this may seem simple but it’s the most effective way as it is the most important factor for both FICO and VantageScore. Make sure you are NEVER late and if you are stay within 30 days.

2) Pay back and use your credit card balance strategically: You want to make sure your balance is low when the credit report is issued, because that's what is used in calculating your score. In order to do this, just pay down the balance before the billing cycle ends or pay several times throughout the month to always keep your balance low. Use a maximum of 30% of the limit. The highest credit score people even use a much lower utilization rate (7%)

3) Ask for higher credit limits while maintaining the same utilization: When you ask for a higher credit limit but utilization stay the same, your rate of utilization automatically goes down.

4) Check your credit reports for errors: I know it might sounds logical but this is a very fast way to improve your scores, by correcting any mistakes.

5) Become an authorized user: If a friend or family member has a high credit score, ask to be added as an authorized user. In this way you can benefit from that users positive credit history. Especially if you are new with a credit score it can help you a lot. Of course having access to the other person’s card is something you have to discuss with that person…

The measures just mentioned are fixes you can do relatively quickly. You will most likely see the effect in 30 days, after your next credit report.

Make sure you read your credit report carefully and set your payment alerts well.

Conclusion

First of all, we can agree that credit scores are important, it’s an important tool for your financial independence.

We saw that credit scores are used throughout the world. Even though we focused on the US here, the principles of most countries are the same.

The key elements of a credit score are

1 Payment History

2 Credit utilization

3 Length of credit history, where recent credit behavior weighs heavier

4 Your total balance and the Mix of your credit

5 New and available credit

If you want to make improvements you need to focus on these. To lift your score do these 5 things:

1 Pay Bills back on time

2 Pay and utilize your credit card balance strategically

3 Ask for higher credit limits

4 Check your credit report for errors

5 Become an authorized user

These are actions you can undertake within the coming 30 days, so go and take action!

Please see the YouTube video of how to boost your credit score here:

https://www.youtube.com/watch?v=OET5DuUiLeM

In addition, please visit Smart with Money if you want to know more about personal finance and investing:

https://www.youtube.com/channel/UCVlkL8wa-54BNF4ozXGLJ-g