How You Can Boost Credit Score Overnight
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Boost Credit Score Overnight? Many different factors go into your credit score, also known as the FICO score. Your FICO score is calculated based on your credit report by a formula created by the Fair Isaac Corporation. However, FICO does not disclose its exact method.
No one may know how important each factor is in calculating the credit score, however, the one known factor that plays a significant role in your utilization rate.
Your utilization rate is basically “how much of your available credit are you using?”
You need to check your credit reports
Consumer Reports initiated the Credit Checkup project earlier this year and asked volunteers to check their credit reports for accuracy and report what they found by filling out a short survey. Almost 6,000 volunteers signed up to participate in the project and filled out the survey between February 1 and April 1, 2021. CR’s analysis of the Credit Checkup survey responses found that:
- 34 percent of consumers reported finding at least one mistake in their credit reports.
- 29 percent of consumers found personal information errors in their credit reports such as a wrong name or address, with over half of those errors being incorrect addresses.
- 11 percent of consumers found account information errors, with the most common being accounts appearing in their credit reports that they did not recognize.
- 15 percent of consumers who reported having accounts in forbearance found that one or more of these accounts were not being reported as “current” as required under the CARES Act.
- 10 percent of consumers found accessing their credit reports “difficult” or “very difficult.” Many reported being locked out of their credit reports because of identity verification questions that they could not answer.
- Some consumers reported being charged by credit bureaus to access their credit reports and being unwittingly signed up for paid services.
One Quick Way to Boost Your Credit Score
The theory is that if someone has credit lines of $10,000 and they’re using $9,500 of that credit, they’re a much more significant credit risk than someone who’s only using $1,000. Therefore, their credit score would be lower.
However, there are a few things about how FICO calculates your utilization rate, which is a bit strange. One small loophole, in particular, can result in you being able to quickly boost your credit score without actually having to reduce your credit balances.
==> The Odd Thing About Credit Utilization
Rather than measuring your average utilization rate, FICO chooses to estimate your score based on your highest utilization rate.
For example, let’s say you have two credit cards. Both of them have a $5,000 limit. One card is maxed out, while another card has a balance of zero.
In this case, your maximum utilization rate would be 100%, thus negatively impacting your credit score.
On the other hand, if you had distributed your credit balance half and a half over the cards, your maximum utilization would be only 50% each.
Another example would be if you had one card with a $1,000 limit and another card with a $5,000 limit. If you had to charge $800, it’s a much better idea to charge it to the $5,000 card.
==> A Few More Things to Know About Utilization Rate
The ideal utilization rate is 35% or under on all your cards. Having one card above 35% will drag your max utilization up.
In an independent study of 70,000 different credit scores, researchers found that people with 720 or higher credit scores tended to use 20% or less.
However, people who had a zero percent utilization rate often had shallow credit scores. That’s because their credit scores were so low, they couldn’t even get a credit card.
The ideal is not to have a zero percent utilization rate. If you’re not using your credit cards at all, you’re not demonstrating creditworthiness. Remember – creditors want to know that you’ll pay off loans you take out, not that you don’t take out loans.
So try to get your utilization rate between 1% and 35%. If you have a low balance on one card and a high balance on the other, try balancing your cards out to get your maximum utilization rate down. This one technique can very quickly give you a credit boost, literally in just a few days.