While it can take years to build good credit, it’s possible to “undo” your progress in a short amount of time. If you make a bunch of late payments on a credit card or let an account go into default, for example, the damage to your credit score can be quick and painful. And, you may not even realize how bad it is until you go to apply for a loan or an apartment and get a big, fat denial.
Fortunately, there are some credit-boosting strategies that are fairly easy to implement. It does take time to rebuild your credit, yes, but you can make progress if you get started right away.
6 WAYS TO BOOST YOUR CREDIT SCORE WITHOUT EVEN TRYING
If your goal is bringing your credit score back up to its former glory but don’t want a bunch of hassle or stress, it’s wise to be strategic with your time and your energy. Here are six ways to improve credit that don’t take much effort at all:
#1: PAY DOWN DEBT TO IMPROVE YOUR UTILIZATION RATE.
According to myFICO.com, the amounts you owe in relation to your credit limits makes up 30 percent of your FICO score. If you carry a large balance compared to your credit limits, you can expect your credit score to tumble. Why? Because, when you owe a lot of money or max out your cards, it shows creditors you’re hungry for credit and perhaps a riskier customer than they thought.
The answer here is simple if you’re serious about improving your credit. If you want to lower the amounts you owe (a.k.a. your utilization rate), you need to pay down as much debt as you can and refrain from running up balances you can’t pay off right away. Most experts suggest keeping your utilization below 30 percent if you hope to optimize your credit score. So, if you have one credit card with a $5,000 credit limit, you should strive to keep your balance below $1,500 or lower if you can.
#2: HAVE SOMEONE WITH GOOD CREDIT ADD YOU AS AN AUTHORIZED USER.
According to credit card issuer Discover, getting added to someone’s credit card account can give your credit score a boost. This situation can be risky, however, since both of your credit scores can be hurt if either one of you default or use credit irresponsibly.
To make the most out of this situation, let a friend or loved one with good credit add you to their account. Then, let their reported on-time payments help boost your score. Keep in mind, you don’t actually have to access their credit line or use your authorized user card to benefit from their on-time payments.
This strategy can even work for couples, notes Orange County financial advisor Anthony Montenegro of Blackmont Advisors.
“It’s not uncommon for couples to be made up of a saver and a spender,” says Montenegro. “If you’re the one with good credit, try adding your significant other to your credit account as an authorized signer.” With this strategy, you aid them in restoring their good name in the eyes of the credit bureaus and credit providers. It also helps your household create a budgeting system that improves your entire financial situation.
#3: GET A DEBT CONSOLIDATION LOAN.
“Opening a debt consolidation loan may raise your credit rating very quickly, says financial advisor Tom Diem of Diem Wealth Management. While this may seem unlikely, it’s true. According to a recent study from Payoff.com, debt consolidation loans that pay off credit card balances have been shown to improve credit scores by 40 points or more in a short amount of time.
With a debt consolidation loan, you may also save money since you can merge high interest credit card debts into a new loan with a lower rate and better terms. You may even score a lower monthly payment in the process.
This strategy may even work with student loans, notes Brian Hanks, a financial planner for dentists and author of How to Buy a Dental Practice. However, Hanks suggest talking with a financial planner first to make sure you understand the pros and cons of refinancing, some of which extend well beyond your credit score.
Either way, the key to consolidating debt successfully is taking your new loan seriously instead of using it as a crutch. In other words, use the opportunity to pay down debt with fervor at a lower interest rate instead of making only minimum payments.
#4: PAY ALL YOUR BILLS ON TIME.
While a late payment here and there may not seem like a big deal, the impact to your credit score may be huge. That’s because your payment history is the largest determinant of your credit score, according to myFICO.com.
“Even one late payment can have an impact on your credit,” says financial planner Alex Whitehouse of Whitehouse Wealth Management. “The later the payment, the worse it impacts your credit.”