Easy Tricks to Fix a Bad Credit Rating
Although there is no magic fix for a poor credit score, there is a way to quickly increase your score by several dozen points. This can really help if you are only a few points away from qualifying for a mortgage, auto loan, credit card, or even a better interest rate. Improving your credit score by a large amount, such as 50 to 100 points or more, will still take time and dedication, but if you need a quick boost to make a purchase, there is a simple way to do it.
Many different factors are taken into account when a FICO score is created. These include late payments, types of credit, bankruptcies, charge-offs and the amount of debt. Of all these factors, only the amount of debt can be changed quickly, especially since it is not the exact dollar amount that is considered, but the amount of debt compared to the amount of credit that is available. For example, if you have $495 in card debt, and a $500 limit, your score will drop because you are using nearly all of your credit. On the other hand, if you have $5,000 in debt, but a $50,000 credit limit, your score will be better because you are only using a small percentage of your available credit. This debt to credit ratio is updated monthly and your score can change quickly depending on how much credit you are using at any given point in time.
Taking that into account, it’s simple to improve your score by paying off credit cards and other debt, instantly improving your debt to credit ratio. In the real world, however, this isn’t always possible, especially if you’re already struggling to make payments. Pay down credit card balances as much as possible to improve your credit utilization ratio. As your balance goes down, your credit score goes up.
Since it isn’t always possible to pay down large balances quickly to improve your credit score, there is another option. Ask for credit limit increases on several of your credit cards, even store cards. If you’ve had the card for six months or more and made payments on time, it is likely you will be approved for a limit increase. The key to this strategy is that you must not use the increase. Do not make additional charges on the card just because more credit is available. Keep the balance as low as possible. This instantly improves your debt to credit ratio and drives your credit score up within a matter of weeks.
Another strategy, if you can’t get a limit increase, is to spread your debt out over several lenders by using balance transfers between cards to balance out the ratio. For example, if the balance on one card is nearly at the credit limit, and another has only a small balance, transfer a portion of the high balance to the card with the low balance to help even things out. You can apply for a new card for the purpose of transferring balances, but there is a risk that the inquiry and additional credit line will have a temporary negative affect on your credit score. If most of your cards are maxed out, however, the positive effect of a better debt to credit ratio may be worth the small hit from a credit inquiry. If you can get a personal loan, use it to pay down credit cards and improve your credit score.
Don’t forget creative solutions as well. If it’s critical to quickly bump your score up by a few points consider using savings to pay down a credit card balance, and letting the card act as your emergency back-up. Make some extra money by having a garage sale, or sell off unused fitness equipment, furniture or electronics. Dedicate that money to paying down credit cards to improve your debt to credit ratio. Anything you can do to reduce the amount owed compared to the amount of credit available will raise your score quickly.