2 Major Factors to Help You Easily Get a Higher Credit Score Within a Few Months
Are you new to having credit, without having any credit cards, auto loans, or mortgages? Or do you have “fair” credit, but not much credit history? If so, it is very possible to get a “good” credit score within a reasonable period of time, say 3-6 months.
Let me share my story:
I had not a lot of history on my credit report, and I had no current credit cards, when I decided to try to increase my credit score at the beginning of this year. My score, at the time, was 629 (Vantage Score 3.0), which was a “fair” score, which I was able to check, for free, using Credit Karma.
I was attempting to get better credit because I am interested in possibly financing a car in the near future. A higher credit score would hopefully allow me to get better loan terms. Here are explanations of Vantage vs. FICO scores - the main types of scores used by creditors today.
Since I did not have much credit history, I decided to apply for a secured credit card - meaning, the credit card balance would be as high as, and protected by, its deposit. I applied for, and was approved for, a $200 secured card, which was the lowest amount available. The credit card company promised to return the deposit, while keeping the credit available, if all of my credit sources were in good standing through 6 months.
When I opened my account, my credit score dropped by 2 points, which is common. A credit inquiry like this usually makes your score drop a little, temporarily. A month later, an inquiry from a couple of years ago was removed from my report, raising my credit score by 20 points, to 647. This was unexpected, but did not have any other significant impact on my score.
A couple of months later, my score raised to 677, primarily due to having my credit card utilization ratio at 28%. This factor is explained below.
With my higher credit score, I decided to try to open another credit card account, this time, unsecured. I did this mainly to increase my credit limit amount, to lower my utilization ratio, also explained, below. I was approved for a $300 credit card.
Within 5 months, my score had gone up to 699, which is considered a “good” score! Even not counting the 20 point raise I received from the inquiry being dropped from my credit score, I would have had a score of 679, which is still considered “good.” I had achieved this mainly by making all of my payments on time, and keeping the utilization ratio low.
The 2 Major Factors That Affect Your Credit Score
Payment History
The main factor that affects your credit score is your payment history. Your payment history accounts for 35% (FICO) - 40% (Vantage 3.0) of your credit score. This means it is affected by keeping all of your payments on time, with any late payments lowering your score.
Credit Utilization Ratio
The next most important factor that changes your credit score, is your credit utilization ratio. It makes up 30% (FICO) - 31% (Vantage 3.0) of your credit score. Creditors like to see that you use less than 30% of your available credit, which will make your score go up. So say, for example, that you have a $500 credit limit – you should keep your overall credit balances below $150.
You can make your utilization ratio go up by keeping your balance low, and/or by increasing your overall credit limit, for example, by getting a new credit card. I was doing both.
Summary
I was able to raise my credit Vantage Score 3.0 from 629 (Fair) to 699 (Good), within 5 months, mainly by making on time payments, and keeping my credit utilization ratio low. The other major factors to increasing your credit score can be found here.
So there you have it – it is possible to increase your credit score more than you would expect, in less time than you would expect, as long as you pay attention to these 2 major factors, which make up about 2/3 of the total factors affecting your credit score. If you have these handled, you should also pay attention to the other factors affecting your credit, to have an even higher score.
I hope that this knowledge, and application, helps you get the credit score you want, so that you can make purchases on your terms, and have better control over your finances.