The Best Ways to Rebuild a Credit Score Quickly
© 2009, Brandon Cornett. All rights reserved.
Reader Question: “We have some credit mishaps in our past, and as a result mine and my husband’s scores are both low. We want to get qualified for a mortgage loan early next year. What are the best ways to rebuild credit quickly?”
First off, I’d like to congratulate you for taking the first step. By accepting your past mistakes and seeking help, you are well on your way to rebuilding your credit. It’s also great that you’re starting early, before you plan to buy a home. You can rebuild a score consistently over time, but “time” is the opportune word. It can take months to make dramatic improvements, so it’s good that you’re starting now.
Best Ways to Rebuild - Payments & Balances
With that being said, let’s talk about the best ways to rebuild your credit score quickly, so you can qualify for a mortgage with a decent interest rate. The best way to understand all of this is by examining the factors that influence your score. Below, I’ve borrowed a chart from the Home Buying Institute (one of our websites) to show you which factors affect your score the most.
FICO credit score chart
As you can see from the chart above, there are two factors that account for more than half of your FICO credit score — (A) payment history and (B) amounts owed. The first category refers to your history of making payments on credit cards, loans and other types of debts. Making payments on time will increase and maintain your score, while late and missed payments will lower your score. The “amounts owed” category refers to the amount you owe across all of your credit accounts.
So, the best way to rebuild credit quickly over time is by focusing on these two items first. From this day forward, make sure you pay all of your bills on time — especially your credit card bills and loan payments. And do whatever you can to reduce your current credit card balances. Paying your balances down will improve your “credit utilization ratio” as well as your debt-to-income ratio, and both of these things will help you qualify for a mortgage.
 |
Check Your Score First |
It’s also a good idea to review your credit reports (all three of them) to make sure there aren’t any errors on them. According to a study I read once, the majority of credit reports have at least one mistake on them. Visit HomeBuyingInstitute.com for step-by-step advice on correcting errors.
These are the best ways to rebuild your score quickly, so put them into practice today. Lastly, I would caution you against closing your old credit accounts. Some people think that this is a good way to improve a score, but the opposite is true. In the chart above, you can see that the length of your credit history is another key factor in your overall score. If you start closing your oldest accounts (like that first card you opened when you were 18), you will shorten your credit history. This can have a negative impact on your score. Keep the old accounts open, if at all possible, but pay down those balances!
More Credit Score Advice
This article offers advice on the best ways to rebuild a score quickly. You can find more tips on this subject on the credit page of our main website. If you have a follow-up question to this one, feel free to send it to us like you did the first time. That’s the whole purpose of this Q&A blog.
I hope this answers your question, and I wish you all the best with your home-buying process next year. I’ve given you plenty to work on between now and then. Now there’s nothing to but to do it.
I have old credit card debt from 4 years ago. To improve my score quickly, should I concentrate on paying my current cards on time and paying down these balances first before I get on payment plans with my old debt? I read somewhere that opening these old accounts by paying them can actually lower my score.
I am confused by what you mean when you say “opening these old accounts.” If you still owe balances on those accounts, they are still active … unless the creditor has charged off the balance and sent it to a debt collector.
To improve a credit score, it’s generally best to start paying down the cards with the highest balances (relative to their limits). In other words, the cards that are closest to being maxed out. This will lower your utilization ratio, which helps boost your score.