How to Raise Your Credit Score Fast - Updated for 2011

By Brandon Cornett
© 2011 All rights reserved

Reader Question: "My husband and I are planning to buy our first home early next year. We have had to put it off a bit because I have bad credit. We both need to be on the mortgage loan for income purposes, so I need to improve my score first. How can I raise my credit score as fast as possible, to help us qualify for a loan?"

This is one of the most common questions we get from our readers. In fact, it's one of the top two questions in terms of frequency. (The other question has to do with housing affordability.) It seems a lot of home buyers want to know how to raise their credit scores. So you're in good company.

In a nutshell: You can boost your FICO score by paying all of your bills on time, and reducing the amount you owe on your credit card(s). Cleaning up any errors on your credit reports may also help. As we progress through this article, you'll learn why these things are so important.

Why Is Credit Such a Problem?

For many people, the credit score is a major obstacle to mortgage approval. In fact, it's one of the top-three reasons for rejection. There are two reasons for this:

• Mortgage lenders have tightened their requirements across the board. They are much more strict today than they were during the housing boom. This applies to credit scores as well. To qualify for a home loan in the current lending environment, you'll probably need a score of 620 or higher. The days of "subprime" loans are over.
• Our economic recession has increased the number of people with credit problems. A higher percentage of people have fallen behind on car payments, student loan payments and the like. More people have had to "max out" their credit cards. Foreclosure and bankruptcies have risen as well. All of these things can do serious damage to a person's credit score.

This is why so many people are asking the same question you are: How do I raise my credit score as fast as possible? The bad news is that hundreds of thousands of Americans are in the same boat. The good news is there's plenty you can do to raise your score. So let's talk about that next.

Terminology note: For the remainder of this article, I'll be referring to your FICO credit score in particular. This is the one mortgage lenders use most often, when considering you for a home loan. There are other scoring models out there, but we will limit our discussion to FICO in particular. It's a three-digit number between 300 and 850. The higher your FICO score, the better your chances of getting approved for a loan.

How Fast is "Fast"?

You want to know how to raise your credit score fast. Following the three steps outlined below will help you achieve this goal. But what exactly does "fast" mean in this context? How long does it take to make significant improvements in your FICO score? I hate to resort to the 'D' word, but it depends.

People with a long history of missing payments will have a harder time restoring their credit than a person with a single late payment. The length of your credit history also plays a big role in how long it takes to raise your credit score. So there is no way I can give you a timeline. With that being said, the steps presented below will help you boost your score as fast as possible (given the state of your credit history).

You should think of it as a marathon, instead of a sprint. Credit scores fluctuate on a near daily basis. But it takes time to make significant improvements. Within the context of this article, a "significant improvement" would be an increase of 50 points or more. It might take weeks or months to accomplish this goal, depending on the variables we discussed earlier.

The 3-Step Strategy to Raise Your Credit Score

Let me point out that this information doesn't come from me. This is not my patented "system" for boosting a FICO credit score. This information comes from the company that created this scoring model. All I've done is present the information in a clear manner so you can easily understand it.

The FICO company has listed the factors used to determine a person's FICO score. They have given us the blueprint for success. If you want to raise your credit score as fast as possible, you simply need to focus on these factors. There is no mystery to it.

Your score is determined by the following factors:

Scoring Factor	Weight	Description
Payment History	35 percent	This item affects your score the most. If you have a habit of paying your bills on time (credit cards, auto loans, personal loans, etc.), you'll end up with an excellent score. Learn more
Amounts Owed	30 percent	Generally speaking, a higher balance on your credit accounts will result in a lower credit score. This is referred to as your "utilization ratio." It's a comparison between your available credit limit and the amount you owe.
Length of Credit History	15 percent	This is the item you have the least control over. A longer history will usually result in a better score. In most cases, your history begins when you take out your first loan, or when you open your first credit card account.
New Credit	10 percent	This refers to the number of recently opened credit accounts you have, as well as the number of recent credit inquiries. If you open a lot of new accounts in a short period of time, it may damage your FICO score.
Types of Credit Used	10 percent	Having installment loans and credit card accounts (and making all of your payments on time), could help you boost your score. I wouldn't sweat this one too much -- it only accounts for 10 percent. Instead, I recommend focusing on the first two items.

If you want to raise your credit score fast, you should focus primarily on the first two items in the table above -- payment history and amounts owed. There are two reasons for this: (1) these are the items you have the most control over, and (2) these are the items that count the most toward your overall FICO score. Again, this is based on information given to us by the company that actually created the scoring model. You can't get any closer to the source than that.

Here are some specific steps you can take to boost your score. We have covered most of this information already. Now we can get into the nuts and bolts of each item...

Step 1 - Review Your Credit Reports

Your credit score is derived from the information found in your credit reports. These reports show how you have borrowed and repaid money in the past (with creditors and lenders). The image below shows how this information is turned into a three-digit score. 

In a perfect world, your reports would be 100-percent accurate. They would never contain false information that could hurt your credit score. We do not live in a perfect world. In fact, the reporting industry is far from perfect. I read a study a few years back that suggested 80 percent of credit reports had some kind of error. One would hope things have improved since then. But I wouldn't hold my breath.

Here's what you need to know. Erroneous information in your credit reports can drag down your score. So if you're on a crusade to raise your credit score, you need to start with the reporting bureaus. Get copies of your reports from all three companies (TransUnion, Equifax and Experian). Check them over for accuracy. Dispute any errors you find.  The sooner you start this process, the better. It may take some time to get everything straightened out.

Step 2 - Pay Bills on Time / Eliminate Bad Habits

If you're researching ways to raise your FICO score, I can safely assume your score is currently low. This is probably the result of bad financial habits in the past. Remember, your score is based on the information found in your credit reports -- it's not pulled out of thin air. And the reports are basically a history of how you have borrowed and repaid (or not repaid) money in the past. So you need to identify the bad habits that damaged your credit in the first place.

Maybe you have a habit of missing credit card payments. Maybe you've maxed out a few cards in the past. Perhaps you've had accounts sent to a collection agency. Bankruptcy, foreclosure, debt collection -- all of these things can harm your FICO score. So take a vow, right here and now, to avoid these kinds of things in the future. Change your habits for the better, and your credit score will follow.

Your actions have consequences. Your actions are captured within your credit reports, and they go on to shape your credit score. You are the only one who can change your actions. A so-called "credit repair" company cannot change your actions. A financial coach cannot change them. You must do it on your own. If you look like an irresponsible borrower on paper, your score will reflect this. If you establish a pattern of responsible borrowing, your score will improve. It really is that simple.

Related reading: The Damage Caused by Late Payments

Step 3 - Reduce Your Credit Card Balances

If you refer back to the table above, you'll see that "amounts owed" accounts for 30 percent of your FICO score. This is your utilization ratio. This ratio shows the amount of available credit you are currently using. In other words, how close are you to reaching your credit limit?

If my card has an $8,000 limit on it, and my current balance if $4,000, then my utilization ratio would be 50 percent. I am using half of my available credit. Generally speaking, a higher ratio will result in a lower FICO score. So it's possible to raise your score by reducing the amount of debt you owe. Obviously, this has other benefits that go well beyond scoring models. Think of the burden you'll be lifting from your shoulders, when you reduce your debt load!

Note the difference between reducing your balances and closing the actual accounts. You should certainly consider paying down your balances, in order to raise your credit score fast. But be cautious about closing the accounts -- this could actually hurt your FICO score.

Be Careful Closing Old Accounts

We just talked about the amounts owed on your various credit accounts, and how it accounts for 30 percent of your score. You'll recall that the technical term for this is the "credit utilization ratio." This ratio is an average of all your accounts. So if you close an old / unused card, you also eliminate some of your available credit. This could increase your utilization ratio and thus lower your score.

This will make a lot more sense with an actual example:

John currently has three different credit cards open.

• Card #1 has a $500 balance and a $1,000 limit.
• Card #2 has a zero balance and a $2,000 limit.
• Card #3 has a $1,000 balance and a $1,000 limit (it is "maxed out")

Based on the status of these accounts, John's utilization ratio would be 37 percent. Here's how I came up with that number:

• Total balances = $1,500 ($1,000 + $500)
• Available credit on all cards = $4,000 ($1,000 + $2,000 + $1,000)
• Credit utilization ratio = 37 percent (1,500 divided by 4,000)

Let's say John chooses to cancel one of his credit cards. He closes account #2, because he never uses it. There's a zero balance on the card, so there's no point in keeping it open, right? By removing this extra $2,000 credit limit from the picture, he would change his utilization ratio for the worse. Here's what it would look like after closing card #2:

• Total balances = $1,500 ($1,000 + $500)
• Available credit on all cards = $2,000 ($1,000 + $1,000)
• Credit utilization ratio = 75 percent (1,500 divided by 2,000)

So just by closing that one card, John has increased his utilization ratio from 37 - 75 percent. This would have a negative effect on his FICO score. Bottom line: If you are trying to raise your credit score, you should be very careful about closing your old accounts.

That's not to say you can never cancel your old cards. You are free to do so anytime you want. You just need to be careful when you do it. If you're about to apply for a mortgage loan, and you're trying to boost your FICO score, you're probably better off leaving those accounts open (if they're working to your advantage).

Disclaimer: This article explains how to raise your credit score as fast as possible. Most of the concepts in this article come directly from FICO, the company that developed the FICO scoring model. I've just tried to make the information more accessible for you. I make no guarantees about the strategies explained in this article. Based on everything we know about the scoring models, these strategies should help you boost your score. But it's not something I can guarantee. I encourage you to conduct plenty of research before taking any measures that could affect your credit.