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  • Writer's pictureFair Capital

Unlock the secrets of your credit score with our comprehensive guide

Updated: Sep 19, 2023


Your Credit Score Guide

A credit score is a numerical representation of a person's creditworthiness, calculated based on the person's credit history. It helps creditors and lenders assess the risk of extending money or providing credit to an individual.


FICO and VantageScore

FICO and VantageScore are both methods for calculating credit scores. The primary difference lies in their algorithms and weightage of factors. Both scores range from 300-850. FICO is more commonly used by lenders, but VantageScore has been gaining traction.


FICO vs  VantageScore

A good credit score can significantly impact a variety of different aspects of one's life. It can affect the terms and availability of loans, credit cards, and even things like rental agreements, car leases, and insurance. A higher score can lead to better interest rates, higher credit limits, and more favorable financial opportunities.

Key components of a credit score include:

  • Payment history: Your track record of paying bills on time.

  • Amounts owed: Total debt compared to credit limits.

  • Length of credit history: How long your accounts have been active.

  • Debt collection: If you have any account in collections.

  • Credit mix: Types of credit, such as credit cards, mortgages, and installment loans.

Credit scores are determined by credit reporting agencies using data from creditors and debt collection agencies. Typically, your credit score is updated whenever new information is added to your credit report, which can be monthly or even more frequently.

Credit score tiers are:

  • Exceptional: 800-850

  • Very Good: 740-799

  • Good: 670-739

  • Fair: 580-669

  • Poor: 300-579

Payment history has the most significant impact, as consistent late payments can greatly harm your score. High utilization of available credit, frequently opening new accounts, and having a limited credit history can also negatively affect your score. Other factors, such as debt collections and bankruptcy, can have a drastic effect on someone's credit score.


Tips for maintaining and improving your credit score:

Improving a credit score quickly requires careful planning and responsible financial habits. Here are five strategies that might help you boost your credit score in a relatively short period:


Reduce Credit Card Balances:

Reducing credit card balances is a key strategy in improving a credit score. Here's why it's effective and how you can implement it:


Why it Works:

  • Credit Utilization: Credit utilization refers to the percentage of your available credit that you're using. It's a significant factor in your credit score.

  • High Utilization Hurts Your Score: If you're using a large portion of your available credit, it can signal risk to lenders and negatively impact your credit score.

  • Lower Balances Show Responsibility: By keeping your credit card balances low, you demonstrate that you can manage your credit responsibly.

How to Implement:

  • Pay More Than the Minimum: If possible, pay more than the minimum payment on your credit cards to reduce balances faster.

  • Create a Payment Plan: Consider a budgeting strategy that prioritizes paying off higher-interest cards first or targets specific cards for faster payoff.

  • Avoid Maxing Out Cards: Try to keep the balances on individual cards low, rather than maxing out one card, even if you have others with zero balances.

  • Monitor Your Spending: Stay aware of how your spending impacts your overall credit utilization, and make adjustments as needed to keep balances low.

  • Consider Balance Transfers: If you have high-interest credit cards, you might consider a balance transfer to a lower-interest card. Be mindful of any fees or introductory rates that may apply.


Become an Authorized User:

Becoming an authorized user on someone else's credit card account is another strategy that can help improve a credit score. Here's why it can work and how to implement it:


Why it Works:

  • Builds Credit History: If you have a limited credit history or are trying to rebuild your credit, becoming an authorized user can help you establish a positive credit record.

  • Utilizes Someone Else's Good Habits: If the primary cardholder has good credit habits (like paying on time and keeping a low balance), those positive behaviors can reflect on your credit report.

  • Immediate Impact: Depending on the credit card issuer and credit reporting agencies, you may see a quick improvement in your credit score once added as an authorized user.

How to Implement:

  • Find a Responsible Primary Cardholder: The key is to become an authorized user on an account where the primary cardholder has responsible financial habits. This often means choosing a close family member or trusted friend.

  • Understand the Responsibilities: Ensure that both parties understand what being an authorized user means. While it can positively affect your credit score, negative behaviors like late payments by the primary cardholder can also affect you.

  • Set Boundaries: It's essential to set clear boundaries regarding the use of the credit card if you will have access to it. Some authorized users never use the card but benefit from the primary cardholder's good credit habits.

  • Monitor Your Credit: Keep an eye on your credit report to see the impact and ensure that all information related to this account is reported accurately.


Dispute Inaccuracies:

Disputing inaccuracies on your credit report is a vital step in maintaining and improving your credit score. Here's why this strategy works and how you can effectively implement it:


Why it Works:

  • Accurate Reporting: Inaccurate information on your credit report can negatively affect your credit score. This might include incorrect account information, wrong amounts owed, or accounts that don't belong to you.

  • Potential Immediate Improvement: If a dispute is successful, and an error is corrected or removed, you may see an immediate improvement in your credit score, depending on the nature of the inaccuracy.

How to Implement:

  • Regularly Check Your Credit Reports: Obtain free annual credit reports from each of the three major credit bureaus (Equifax, Experian, TransUnion) through AnnualCreditReport.com, and more frequently if you're actively working on improving your credit.

  • Identify Inaccuracies: Carefully review your credit reports for any incorrect information. This could include payments marked late that were on time, incorrect balances, or accounts that you did not open.

  • Gather Evidence: If you find an error, gather any evidence that supports your claim, such as bank statements, payment confirmations, or correspondence with the creditor.

  • Contact the Credit Bureau: File a dispute with the credit bureau that has the incorrect information. You can usually do this online, by mail, or over the phone. Include all necessary evidence and clearly explain why the information is incorrect.

  • Follow Up: The credit bureau generally has 30 days to investigate the dispute. Keep track of all communication and follow up as needed.

  • Contact the Creditor: If applicable, you may also want to contact the creditor that reported the inaccurate information, following a similar process as with the credit bureau.

  • Monitor Your Report: Once the dispute is resolved, continue to monitor your credit report to ensure that the inaccurate information doesn't reappear and that no new errors occur.


Avoid Opening New Credit Lines:

Avoiding opening new credit lines unnecessarily can be a wise strategy in managing and improving your credit score. Here's why this approach works and how to implement it:


Why it Works:

  • Limits Hard Inquiries: Each time you apply for a new credit line, a hard inquiry is typically made on your credit report. Multiple hard inquiries in a short period may lower your credit score temporarily.

  • Prevents High Utilization: Opening multiple new credit cards or loans might lead to overspending and high credit utilization, which can negatively affect your credit score.

  • Maintains Age of Credit: Opening new accounts lowers the average age of your credit accounts, which can also lower your credit score. Older credit accounts generally contribute to a higher score.

How to Implement:

  • Assess Your Needs: Before applying for new credit, consider whether it's truly necessary and how it aligns with your financial goals and current credit situation.

  • Understand the Impact: Recognize that each new credit application may affect your credit score. If you are planning a significant financial move soon, like buying a home, it might be wise to avoid new credit applications.

  • Use Existing Credit Wisely: Instead of opening new credit lines, focus on managing your existing credit responsibly. Timely payments and low balances can boost your score.

  • Shop Around Carefully: If you do need new credit, shop around for the best rates and terms, and try to do so within a short timeframe. Credit scoring models often count multiple inquiries for the same type of credit as one if done within a specific window (e.g., 14-45 days).

  • Consider the Long Term: Think about your long-term financial picture and how new credit fits into that. Avoid impulse applications for store credit cards or offers that might not align with your long-term financial health.


Negotiate with Creditors:

Negotiating with creditors can be an effective strategy to improve your credit score, particularly if you're dealing with outstanding debts or collections. Here's why it works and how you can implement it:


Why it Works:

  • Potential Reduction in Debt: By negotiating with creditors, you may be able to reduce the amount you owe, agree on a manageable payment plan, or settle a debt for less than the full amount.

  • Avoids Further Damage: Handling outstanding debts through negotiation can prevent further negative reporting to credit bureaus, protecting your credit score from additional harm.

  • Can Lead to Positive Reporting: Some creditors may agree to report the account as paid in full or remove negative information as part of a negotiated settlement.


How to Implement:

  • Understand Your Debt: Before contacting creditors, make sure you understand the status of your debt, how much is owed, and any related interest or fees.

  • Prepare to Negotiate: Have a clear idea of what you're willing and able to pay. Be realistic about your financial situation, and think about what you want to achieve through negotiation.

  • Contact Your Creditor: Reach out to the creditor and explain your situation. You might offer to pay a lump sum that is less than the full amount or request a new payment plan.

  • Be Professional and Persistent: Stay calm and professional in your interactions, and be prepared to negotiate back and forth.

  • Get It in Writing: If you reach an agreement, get everything in writing before you make a payment. This includes any promises about how the payment will be reported to the credit bureaus.

  • Monitor Your Credit Report: After fulfilling your part of the agreement, keep an eye on your credit report to ensure that the changes are accurately reflected.

  • Seek Professional Help if Needed: If you're unsure about negotiating on your own, you might consider working with a reputable credit counseling agency.


Avoid Closing Old Accounts:
  • Why it Works: The length of your credit history contributes to your credit score. Older accounts help increase the average age of your credit accounts.

  • How to Implement: Keep old or unused accounts open, especially if they don't carry an annual fee. If you need to close an account, consider closing a newer one.


Diversify Types of Credit:
  • Why it Works: A mix of different credit types (credit cards, mortgages, installment loans) can demonstrate that you are capable of handling various kinds of credit responsibly.

  • How to Implement: Consider your financial goals and needs, and if it makes sense, apply for a different type of credit account that you don't already have. Always ensure it aligns with your financial situation and ability to manage the credit.


Have no outstanding debts:

Having no outstanding debts is an excellent goal and can be beneficial for your credit score. Here's a deeper look at why this is a favorable approach and how you might achieve it:


Why it Works:

  • Reduces Credit Utilization: Credit utilization refers to the ratio of your outstanding balances to your credit limits. Having no outstanding debts means that your credit utilization is at its lowest possible point, which can positively impact your credit score.

  • Avoids Late Payments: No outstanding debts mean that you are not at risk of missing a payment, which is one of the most significant factors affecting your credit score.

  • Improves Financial Freedom: Being debt-free reduces financial stress, gives you more flexibility in your budget, and enables you to save and invest more of your income.


How to Implement:

  • Create a Debt Payment Plan: If you currently have debts, create a realistic plan to pay them off. This might include budgeting, focusing on high-interest debts first, or utilizing strategies like the debt snowball or avalanche methods.

  • Avoid Unnecessary New Debts: Be mindful of taking on new credit lines or loans unless necessary. Consider if new debts align with your financial goals and ability to pay.

  • Build an Emergency Fund: Having savings set aside for unexpected expenses can prevent you from needing to take on new debt in a pinch.

  • Continue to Use Credit Responsibly: Even once you are debt-free, continue to use credit responsibly. Regular, responsible credit use (such as paying off a credit card in full each month) can continue to contribute positively to your credit score.

  • Consider Long-term Financial Goals: Being debt-free is an excellent step, but consider how it fits into your overall financial picture, including saving, investing, and other long-term goals.


You can check your credit score for free annually from the three major credit bureaus via AnnualCreditReport.com. Other services, like Credit Karma, also offer free scores. If willing to pay, many credit monitoring services and banks offer regular access to your score, often ranging from $10-$30/month.


Remember, improving a credit score typically takes time, patience, and consistent financial responsibility. While these strategies might lead to a quicker improvement, long-term success is best achieved through ongoing good financial habits.








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Disclaimer: Any and all information is not intended to be, nor is it, legal advice. Please consult your attorney for information concerning allowable rates of interest.

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