Have you begun the process of building or repairing your credit score? Maybe you’ve paid off loans or have been making your credit card payments on time. Even so, you might notice that you’re not seeing any progress. The truth is, your credit score is a sensitive set of numbers and it can take a while before you start seeing improvements.
Here’s a quick guide to understanding your credit score and the factors that influence it. We’ll also help you uncover a few easy tips so you can see your score rise faster.
First, Understand Your Credit Score
Your credit score is a three-digit number that represents how well you pay back debt. Banks, credit card companies and even landlords look at your credit score to determine their risk in working with you. High credit scores indicate less risk for the lender. On the other hand, if you have a low credit score, you’re seen as a riskier borrower.
A good credit score is important because it gives you access to more loan opportunities and lower interest rates.
The most common type of credit score is a FICO credit score. The range of FICO scores are as follows:
- Poor: Less than 580 points
- Fair: Between 580 and 669 points
- Good: Between 670 and 739 points
- Very good: Between 740 and 799 points
- Exceptional: 800 points and above
There are a few different factors that make up your credit score. Some things that can influence your credit score include:
Payment history: Your payment history makes up a full 35% of your FICO credit score. You’ll see your score rise if you pay your bills on time. Your score will go down if you miss a payment or you consistently make late payments.
Credit utilization: Do you only use your credit cards on special occasions or do you regularly max out your cards? The term “credit utilization” refers to how much of your available credit you use every month. If you put more money on your credit cards, you’ll have a high utilization rate — and a lower score. Credit utilization makes up about 30% of your FICO credit score.
Credit history: Banks and creditors consider credit accounts that have been open for a long time to be more reliable and stable than new accounts. Your score will likely rise over time if you do nothing and let your credit lines stay open. The length of your credit accounts makes up about 15% of your FICO credit score.
Credit mix: Lenders like to see borrowers who have experience managing multiple types of credit. Your credit mix makes up about 10% of your FICO score.
New inquiries: Banks and lenders put a hard inquiry on your credit report when you apply for a loan or a new credit card. A hard inquiry allows them to view your report and it will show up as a negative item on your credit report. Your recent inquiries make up about 10% of your credit score.
Next, Learn Who is Reporting Your Score
Your credit score comes from something called your credit reports. A credit report contains information about how you use credit, accounts that you have open and accounts you’ve closed in the past. Late or missed credit card payments, paid-off loans and bankruptcies are a few things that show up on your credit report.
The items on your credit report make up your credit score. If you have a lot of positive items, your score will be higher. If your report has missed payments and financial mistakes, your score will be lower.
Credit reporting bureaus issue your credit reports. There are three major credit reporting bureaus in the United States: Experian, Equifax and TransUnion. Every month, credit reporting bureaus collect, store and catalog information about how you use credit. Creditors you work with submit information to credit reporting bureaus.
These bureaus then use that information to create your report and scores. Your credit score might be slightly different depending on which credit report you view because not every creditor submits information to all three bureaus.
How Long Does it Take Someone to Build Credit?
There’s no hard rule as to how long it’ll take your score to increase or build. The length of time it’ll take for you to see improvements in your credit depends on a number of factors, including how you’ve handled your credit in the past and what you’re doing to fix it now. Building credit can take as little as a few months or it can take a few years of commitment.
One of the best ways to build credit is by making regular payments on a low-rate loan. A Credit Builder Plus loan from MoneyLion has a 5.99% APR and one-year term, and it’s possible to see credit improvement within a couple of months of on-time payments.
How to Build a Healthy Credit Profile
There are a few steps that you can take to build your credit faster.
1. Make Your Payments On Time
Because your bill payment history makes up 35% of your FICO credit score, it’s a pretty big deal. One of the best ways to improve your score is to make sure that you make at least the minimum payment on all of your accounts every single month.
Sit down with all of your credit card and loan statements and write down the minimum payment and due date on each. Copy this information onto a desk calendar or set a reminder on your phone.
Consider signing up for automatic bill pay if your credit card company or lender allows it, like MoneyLion does with its Credit Builder Plus loan. This feature automatically deducts your payment on the date you specify so you won’t have to worry about accidentally missing a due date.
2. Consider a Secured Credit Card
Think that your credit is too low to get a credit card? It actually might not be the case. Secured credit cards are a type of credit builder card that gives you a small line of credit in exchange for a deposit.
For example, you might put down $500 and your credit card provider issues you a card with a $500 line of credit. If you ever want to close the card, your credit card provider gives you your deposit back.
Secured cards are less risky for the credit card provider, so they offer them to borrowers with lower scores. Credit card companies also report secured card payments to credit reporting bureaus, which means that on-time payments raise your score. Consider opening a secured card and paying off the balance in full each month.
3. Get a Small Credit Builder Loan
Credit builder loans are small loans that you can use to increase your credit score. Credit builder loans can be useful if your credit is mostly made up of revolving credit, or credit that restores its line after you make payments. Look for a credit builder loan with low interest and no credit checks.
For example, as a MoneyLion Credit Builder Plus member, you can have access to $500 Credit Builder loans with a quick tap on your app. Like any other type of loan, you need to remember to make your payments on time if you want to see an increase in your credit score. MoneyLion makes it easy by automatically deducting your payments on your pay dates.
4. Check Your Credit Report For Errors
Credit reporting mistakes are fairly common, so it’s important to check your credit report. Unfortunately, one in every five Americans has a mistake on his or her credit report. Some of the most frequent errors that can lower your score include:
- An account that’s paid off is listed as open.
- Bad credit information is put on your report from someone who shares your name.
- An account that you closed voluntarily is reported as closed by lender.
- Bankruptcies, late payments and other negative information are not taken off the report after seven years.
It’s a good idea to scan your credit reports every year to make sure there are no errors.
Under the Fair Credit Reporting Act, you’re entitled to one free pull of each of your credit reports every 12 months and you can report any errors through the corresponding credit bureau’s website. By law, the credit reporting bureau must investigate your claim — and remove the item if it’s a mistake.
5. Avoid Closing Open Lines of Credit
It’s only natural to assume that closing your cards will help increase your score. Unfortunately, it can have the opposite effect. Closing your cards will actually hurt your score because your overall credit utilization percentage will go up as a result.
Your credit utilization is the ratio of your outstanding credit balances compared to your overall credit limit and accounts for about 30% of your FICO score, which means that even a small percentage increase can hurt you.
6. Monitor Your Credit Score with MoneyLion
Keeping tabs on your credit is important if you’re working your way toward a better score. Credit monitoring from MoneyLion can help you reach your credit goals faster. MoneyLion’s credit monitoring service allows you to view and track your credit score over time, helping you stay on track and hit your milestones.
If you are a Credit Builder Plus member, you’ll get weekly credit score updates in the app so you can track your progress to better credit.
Putting Your Best Score Forward
Improving your credit score is all about patience, consistent effort and keeping your goals in sight. Working toward a better credit score takes some patience. Staying consistent with your payments and budgeting will improve your score over time — you just need to stick with it. A program like the MoneyLion Credit Builder Plus membership makes it easy.
Are you ready to get started on the path to a better credit score? MoneyLion Credit Builder Plus is here to help you. Download the MoneyLion app from the Google Play or Apple App store today to increase your credit score.