Your credit score is split up into 5 different components, let’s review each component to see what quick actions we can take in order to quickly improve our credit.
Payment history – 35%
Your payment history is one of the most important things on your credit report. If you miss a payment, there’s no doubt that your score will start to take a dive, and the part that sucks about this is, that one missed payment can stay on your report for the next 7 years.
Luckily, with the new FICO scoring, the longer the time has passed since your last late payment, the less and less this late payment will affect your score. This one is one of those items that you can’t quickly change because its based on history and will reflect on past actions.
How much you owe – 30%
This is one of the most actionable section out of your overall credit score, because its represented by the amount of credit that you have used, out of the available credit limit. Everyone says that in order to keep this portion of your credit score in its prime, you should not use more than 6% of your available credit.
So if you have 4 credit cards totaling a credit limit of $2,400, you should not use more than $144 out of the overall available credit. We know that it doesn’t make any sense to have so much credit and not use it, but if you start using all of your available credit, this will make your credit score take a hit.
One thing that you can do to quickly increase your score is pay off any credit cards that currently have a balance, and getting that utilization down to less than 6%. This is often one of the quickest ways of getting your credit score up, however it will take until the next billing cycle to reflect on your report, as this is usually when the credit cards report up to the credit agencies.
Length of credit history – 15%
Since this one is based on historical statistics, there’s not much that you’re going to be able to do here. However you should keep in mind that the length of your credit history is accounted as 15% of your overall credit. This means that if you get a credit card and decide to close it down in the future, we recommend that you keep it open in order to keep building up that credit history.
The longer you have a credit account or loan open, the better it will be for your credit report and FICO credit score. However, since this is only 15% of your credit score, just keep it in the back of your head and spend more time on the other larger pieces of the credit score pie.
Credit mix – 10%
When we talk about credit mix, we talk about the different types of credit that are present on your report, the most common ones are credit cards, car loans, mortgages, and student loans, retail store cards. In order to get the most of your credit mix, we recommend that you have at least 3 different types of credits, this should give you a good overall mix.
For example, if you only have credit cards showing on your report, opening a retail store credit card, or getting a loan for a car, will greatly increase your credit mix, thus making your credit score go up a few points.
New credit – 10%
New credit works together with the credit mix, for example, if you are diversifying your credit profile by opening new accounts, the new credit that gets reported, will make your credit go up, however this can also make your scores drop. If you are applying for too much credit at the same time, say opening 4 different credit cards in the same month, this can trigger a hit on your credit score because it will seem that you are in need of credit because of the amount of cards that you are opening up within a short time span.
Since new credit is only 10% of your overall credit, we shouldn’t be too focused on it, just make a note that you shouldn’t apply for too much credit at the same time, so that you don’t trigger a hit on your credit score.
How long do changes usually take to show up on my report?
Unfortunately, it usually takes a month for changes to reflect on your credit report, so when we say “quickly” we mean changes that you can see a month from the time you make the change. To recap, things you should do is:
- Keep credit usage low and pay off any credit card balance that you may have.
- Never miss a payment, even if you have to use one credit card to pay the minimum balance of the other.
- Keep your credit mix unique. Don’t just have credit cards on there.
- Don’t open too many credit cards at the same time, as this will trigger a hit on your score for getting too many accounts open in a short period.
- Never close any unused credit cards, as these unused credit cards will keep giving you credit history which accounts to 15% of your overall score.
What about collection accounts?
Since collection accounts are considered to be the bottom of the barrel status, nothing you do will make your score go up. This is because it’s already as bad as it gets when a collection is reported on your credit report. Even if you pay it off, it won’t make your score go up, and if you get it removed, then it might go down a bit because you lose that history.
However, if you follow these basic principles, your credit score should start to go up. Just remember that the quickest thing you can do is pay off any balance on your credit cards.
Pie chart photo by SallieMae