There is a lot of phony information out there about improving your credit score. There is also a lot of information that once worked, but doesn’t anymore, things like disputing everything on your credit report. So, what is the real way on how to improve your credit score?
What Is In Your Credit Score?
Let’s start from the beginning. What is in your credit score?
Your credit score comes from the information in your credit report. If you are wondering how information gets on your credit report, your creditors are snitches. Each money, they report data to the credit bureaus about what accounts you have with them, how long you have had the account, how much money you owe, how much credit you have available, and if your payment was on-time, late, or never paid. How are they allowed to do that? Easy. When you signed up, it was buried in that agreement you never read. Besides, if it’s true, then there is nothing you can do about it. People are allowed to say true things about you.
Your credit score is made up of four main things (check here for how your credit score is calculated)
- Your Payment History
- The Length of Your Credit History
- Your Credit Mix
- New Credit
Obviously, you already knew about the first one. Paying on time is good. Paying late is bad. The second one you can’t do anything about. It is a timer. It starts when you first get credit. The third one is odd to people outside of the credit industry. Basically, creditors like it if you have different types of accounts like a credit card, a car loan, and a mortgage. This is one of the ways you can improve your credit score fast. Finally, there is new credit. The idea is that if you are opening a bunch of accounts, it might be because you are in trouble and about to have a hard time repaying your credit.
A lot of the free credit score places like Credit Karma will let you see your credit report for free. My latest review of myFICO also showed free looks at credit reports available.
How To Improve Your Credit Score After a Late Payment
Here is the bad news. Once you have a late payment on your credit report, there is nothing you can do about it. There used to be a trick where you would dispute all of the bad information on your credit report, like a delinquent payment, and your credit score would go up fast, because they wouldn’t count it while it was being disputed. FICO isn’t run by a bunch of dummies. As soon as they saw what was happening, they started tweaking the formula and adding special flags about how many accounts you are disputing. Let’s just say a 720 credit score with 14 disputes isn’t going to qualify for the best interest rates. (If you have legitimate disputes, report them right away. It takes time to get them off your credit report. Don’t wait until you are applying for a loan. Here are the three credit bureau phone numbers.)
So, how do you improve your credit score after a late payment? By making on-time payments. The credit score formula is not 800 minus your bad stuff. To get to an 800 credit score you have to have a bunch of plus stuff. The more plus stuff you have, the higher your credit score. Yes, that late payment is a drag, but four on-time accounts and one past due payment is a much higher credit score than one on-time account and one late account. In other words, every on-time payment you make helps boost your score. Bury that late payment in good credit score stuff.
Of course, not making another late payment is critical because two late payments is worse than just one late payment times two in your credit score. In fact, in an otherwise good credit report, a single late payment won’t have a big effect. A single late payment might drop a 740-credit score to 720, but two past due payments could drop it to 675. The impact would be less on a credit report with a long history, and several different types of accounts.
By the way, making on-time payments on your other accounts is also how you boost your credit score with collections on your record. If you can, pay off the collection company, but only after they say in writing that they will report your account paid to the credit bureaus.
The Fastest Way to Improve Your Credit Score
The fastest way to improve your credit score is to pay down your debt. Notice, I did not say pay off your debt. That is right, having no credit actually hurts your credit score. Remember the credit score is a measure of how likely you are to use credit without missing payments or defaulting. It is not about how many zero balance accounts you have. They can’t measure how well you are using your credit if you are not using your credit. It is a little bit like trying to tell how good of a driver you are when you keep your car parked in the garage.
Remember, your credit score is not just about minuses, it is about pluses as well. Making a credit card payment is a plus. Having a credit card with zero balance is just a zero, not a plus.
When you pay down your credit you get a double bonus. First, you get a plus for making an on-time payment. You get a second plus for lowering the total amount owed, and a third plus for decreasing the percentage of your overall credit used.
The Short-Cut to Improve Your Credit Score
Is Experian Boost Legit or Is Experian Boost a Scam?
You have seen the commercials for Experian boost with Jon Cena riding a purple cow. Yeah. I don’t know either. But our concern is not marketing. Our concern is how to improve your credit score quickly. All we care about is, is Experian boost legit.
Experian Boost is legit, but…
How Does Experian Boost Work?
Experian Boost works by adding extra information into your credit report that might help you. For example, Experian Boost lets you link your bank account, or credit card account, that you use to pay for things like your mobile phone plan, your cable, your streaming services, and utilities. Then, it adds your on-time payments from those onto your Experian credit report. More on-time payments, equals higher credit score.
What is the catch for Experian Boost?
Good question. There are a couple of catches. First, if you already have a long credit history with a lot of payments, a few more on-time payments won’t move the needle a lot. Yes, plus is plus, and every account helps, but the longer your credit history is, the less Experian Boost will help.
Experian Boost helps people with shorter credit histories the most. It won’t improve your credit score by 100 points in 30 days, or anything like that, but you can get a solid 10- or 20-point bump. That might make the difference in getting a loan, and if you pay that loan on time that will build your credit fast.
The other Experian Boost catch is that it only works with Experian credit reports. You don’t get to choose which credit report a lender uses, and if they use Equifax credit reports or TransUnion credit reports those boosted additions won’t be on there.
Check Your Credit Report
Remember, the information on your credit report determines your credit score and what kinds of loans and terms you are able to get. The information needs to be accurate. Review your credit report several times each year and makes sure there are no mistakes. If there are errors, dispute them right away. You can get your legally required free annual credit reports here.