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When you raise your credit score by 200 points, you greatly improve your ability to get better interest rates and more avenues for taking out credit. Having lower interest rates can save you thousands of dollars in interest payments.
In this article, we’ll go over how credit scores are calculated, what credit score ranges mean, and how you raise your credit score by 200 points.
Let’s jump right in.
How Your Credit Score is Calculated
Your credit score is calculated across five factors that are each weighted differently. Your FICO score can range between 300 and 850, and the higher the score you have, the less risky you are to companies lending you money. Below, I’ll talk about what affects your credit score, and by understanding how to raise your credit score, you can take steps to begin improving it.
Payment History (35%)
Your payment history makes up for 35% of your credit score. This is a key metric because when a lender is granting you credit or a loan, they need to ask themselves if you’ll pay them back on time.
This aspect of your credit score is affected by how late you are with a payment, how often you missed a payment, and how recently your last missed or late payment was. Your payment history also contains information about bankruptcies, foreclosures, and collections.
The greater the number of on-time payments you have compared to late or missed payments, the higher your score will be. That said, each time you miss a payment, your credit score will suffer.
How Much You Owe (30%)
The amount of total money you owe to creditors makes up for 30% of your credit score. It’s important to note that this metric is based on your utilization rate, that is, how much you owe compared to how much credit you have available to you.
Having a mixture of maxed-out credit cards, for example, can hurt your credit score. Instead, keeping balances low will be beneficial to your credit score.
One way of improving this metric is to have a higher credit limit that you never use. I’ll go over this more below.
Length of Credit History (15%)
The length of your credit history makes up for 15% of your credit score. Lenders like to see that you pay your bills on time for a long time, and this part of your score can be based on both how old your oldest credit account is and how old recent accounts are. Because one aspect of this metric is how long your oldest account has been opened for, it is generally wise not to close an old account, such as a credit card, as your credit score may drop if you lose years off your credit history.
Types of Credit (10%)
Your credit mix accounts for 10% of your credit score. Types of credit include revolving credit such as credit cards and installment loans such as mortgages, auto loans, personal loans, student loans, and home equity loans. Having different types of accounts may help you improve your score.
New Credit (10%)
Your credit score may reflect how many accounts you’ve opened recently, as well as how many times you’ve applied for credit. With that in mind, if you are making a big purchase and make multiple credit inquiries in a short period of time – 14 to 45 days on average – to find the best deal, it may only count as one inquiry.
What Do Credit Score Ranges Mean?
Your credit score ranges vary slightly based on whether you’re looking at your FICO score or your Vantage score, however, in general, the ranges are similar. First, let’s look at the Vantage score ranges.
|Credit Score Range||VantageScore Rating|
|300 – 600||Poor|
|601 – 660||Fair|
|661 – 780||Good|
|781 – 850||Excellent|
Below are the FICO score ranges, which are mostly similar
|Credit Score Range||Rating|
|250 – 579||Poor|
|580 – 669||Fair|
|670 – 739||Good|
|740 – 799||Very Good|
|800 – 855||Exceptional|
Let’s talk about what these scores mean for you when you’re applying for credit. I’m going to use FICO score ranges below.
Poor Range: Below 579
When your credit score is in the poor range, it may be difficult, if not impossible, to get a loan or unsecured credit card. You also may get poor terms if you are approved at all. When your score is in the poor range, it may be helpful to look into getting a secured credit card.
You may need to pay fees upfront to help lenders mitigate their risk.
Fair Credit: 580 to 669
When you have a fair credit score, you’ll be more likely to get credit, however, you will likely not get very good rates. That said, you have many more options than you would have if you had poor credit.
Good Credit: 670 to 739
Once your credit score is in a range between 670 to 739, or “Good”, you’re likely to get some competitive interest rates among lenders, though there may be some types of credit that are still difficult to get. Shopping around will help you find what’s best available to you.
Very Good Credit: 740 to 799
Having a credit score between 740 to 799 generally means you pay your bills on time and your credit utilization is mostly low. In this range, lenders find you favorable and may offer you some of the best rates around.
Excellent Credit: Above 800
Having a credit score of above 800 means that you have a long history of no late payments and low credit use on credit cards. Because of your score, you are more likely to qualify for the lowest interest rates for all credit types.
How Long Does It Take To Raise Your Credit Score by 200 Points?
There’s no set time as to how long it will take to raise your credit score. Several factors determine how much your credit score changes by, which have to do with what’s currently on your credit reports each month.
The three credit bureaus collect data each month, and to raise your credit score by 200 points, you’ll want to create and stick to a plan. This plan may take several months to a few years, however, by sticking to a credit rebuilding plan, you’ll be able to reach your goal.
Let’s talk about methods to improve your credit score by 200 points.
How To Boost Your Credit Score by 200 Points
There are several steps you can take to increase your credit score by 200 points. Remember that it can take several months to a few years to add 200 points to your credit score, so stick to a plan to help yourself get there as best as possible.
Review Your Credit Reports for Errors
Simply reviewing your credit report can help you identify ways to raise your credit score. You can access your credit reports from Experian, Equifax, and TransUnion, for free once per year at AnnualCreditReport.com.
It’s possible that you’ll find reporting errors on one or more of your credit reports. By disputing errors, you can have these mistakes cleaned off your report, which can improve your credit score relatively quickly.
Errors occur often enough on credit reports, and it makes sense to take care of them as soon as you notice that they happened. Here is a template from the FTC to dispute errors on your credit report.
Pay Down Your Debt
As mentioned above, the second-largest impact on your credit score is your credit utilization, or amount owed. By paying down your balances, you’ll improve your credit score by reducing your total utilization.
Once you reach 30% utilization on any credit line, such as a credit card, your score starts to be affected adversely. So, if you have multiple credit cards open with balances on them, paying each of them below 30% utilization can have great benefits on your score.
Pay Bills On Time
Paying your non-debt bills on time won’t directly impact your credit score as they aren’t reported to credit reporting bureaus, however, it’s good money habits to pay your bills on time, and by always doing so, you’re less likely to slip up and have a bill reported to collections, which will greatly negatively impact your score.
Always Pay On Time and Don’t Miss Any Payments
Paying your debts on time and never missing payments will build a history of creditworthiness and enable lenders to know that they can trust you with future credit. Having a history of on-time payments increases your credit score as 35% of your credit score is your payment history. The more on-time payments that you make compared to how few late or missed payments you have, the higher your credit score will be.
Diversify Your Credit by Considering a Credit Builder Loan
A credit builder loan can be helpful if you want to diversify your credit profile or if you’re looking for more ways to improve your credit score. A credit builder loan is a small, low-interest personal loan that you can use for just about anything.
You can do with a credit builder loan to take out a small amount of money, such as $1,000, and use that money towards something you need to buy or pay off some bills. Then, pay back the $1,000 through regular on-time monthly payments. This will help you build credit over time, which will help your credit score long-term.
Lower Your Credit Utilization
Another way to reduce your credit utilization is to increase your credit limit. It’s important to understand that if you use this method, that you don’t start using more credit.
For example, if you have a $1,000 balance on a $2,500 limit credit card, your utilization is 40%. If you have your credit limit raised to $4,000, now your utilization is 25%, which is below the 30% threshold for when your score may be negatively impacted.
Raising Your Credit Score Takes Time
No matter what you do to raise your credit score, it will take time to add 200 points to your credit score. Continue to pay debts on time and reduce debt usage overall, as well as to diversify your credit if necessary. Over the next six months to a few years, your credit score will improve greatly as long as you don’t incur too much more debt and don’t miss or make late payments.
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Wrapping It Up
In this article, we went over how to improve your credit score by 200 points and general credit score notes in general.
Now you should:
- Understand how credit scores work
- Know what the different credit score ranges mean
- Have tools to improve your credit score over time
What do you plan to do first to begin improving your credit score?