How To Improve Your Credit For Car, Home & More
If you are looking to apply for a loan of any kind, you want to make sure your credit score (and profile) are in great shape. A high score can mean the difference between qualification, approval, low rates, and favorable loan terms, or high payments and limited loan options.
If you want to buy a home or car in the next year or two, you need to start taking action toward improving your credit score and boosting your overall creditworthiness.
In this complete guide to your credit score, you will learn the top ways to improve your score, apps, and tools that can help speed up the process, what credit score you need to qualify for loans and credit cards, and how long it will take to get there.
Table of Contents
- Improving your credit score requires keeping up with your credit report and showing that you can handle financial commitments and debt payments
- Credit score apps and tools can help you improve your score much quicker
- Most lenders require a minimum credit score to qualify for certain loans and credit cards
- Building your credit can take up to six months, and getting to an excellent score can take years
- Your credit score is calculated through a mix of several different factors
- Credit repair agencies can help remove negative marks or inaccuracies from your credit report, for a fee
5 ways to improve your credit score
While there are quite a ways to increase your credit score, here are the most impactful ways to improve your score quickly:
#1 Keep up with payments
Many people mistakenly believe that having any debt makes for a bad credit score. That’s not the case. In fact, having good debt—like a mortgage or car loan—that you pay off in full every month contributes to your credit since it shows a history of successful borrowing.
But for credit to be healthy, it’s crucial that you pay on time. You can put your monthly bills on a calendar for a visual representation of when they are due.
Or, if you have trouble staying on top of payments or managing your monthly cash flow, try signing up for autopay or sending reminders through a service such as Mint.
#2 Lower your credit utilization ratio
One factor that goes into your credit score is your available to used credit ratio. People with the healthiest credit scores usually use less than 30% of their available credit. You can divide your balance by your total credit limit to calculate this ratio.
So, for example, if you have a $5,000 limit on your credit card, this would mean having a balance of less than $1,500 to keep it under 30%.
Take a look at your ratio and try to get it into a more favorable zone. That might mean pulling back on some purchases, using cash more frequently than you use credit, or paying off your card before the balance gets too high. Using an app like Credit Karma can give you a real-time look into how much credit you are currently using, and help you focus on ways to lower it quickly.
#3 Pay off balances
Your credit score is also affected by how many separate entities of debt you have. You can decrease your spread of debt by paying off credit cards with low balances.
Concentrate on cards you don’t use often with the highest interest rates and monthly payments, such as store-specific cards, and get those paid down with any spare cash you have. Reducing your total number of balances will improve your score.
#4 Review your credit report for mistakes
According to a study done by the FTC, one in five people have errors on their credit report. Before you get your hopes up, these errors could be for or against you. Either way, it’s important to check.
Get a credit report and take a deep look at your history. Check for accuracy in the number of credit accounts that are reported, any late payments you don’t remember, or any applications or credit pulls that seem false. Everything may be in perfect order, but it’s worth a look.
If you do find an error, you can call the creditor to get it removed from your report. You can also work with a professional credit repair agency to remove errors and negative information form your credit report, which can help boost your score much quicker.
#5 Contact collectors
If you have debt collectors after you, you probably spend a lot of time trying to avoid their calls. In order to improve your credit score, you’ll need to do the opposite.
Debt collectors report your failure to pay into the credit bureaus, and the damage can last up to seven years. Paying off any debt that’s in collections won’t automatically stop this reporting, but it will ease the burden.
As a second measure, you can try contacting your collectors to see if they’ll be flexible about reporting you to the credit bureaus once you’ve paid off your debt. It may violate their agreement with the bureaus, but it never hurts to ask.
Apps and tools to help improve your credit score
There are several tools and credit building apps available to help you improve your credit score quicker:
Experian is one of the three major credit bureaus, and their Boost product connects to your payment accounts (credit card or bank) to report on your monthly payments made for rent, memberships, subscriptions, and other monthly bills.
This can help improve your Experian credit score. The downside is these payments aren’t recorded by the other credit bureaus, and not all lenders use Experian to qualify you for loans and other products.
Secured Credit Card
If you haven’t established much of a credit history, your score may be low. A quick way to establish credit and keep your spending in check is using a secured credit card.
Secured cards are more like a prepaid debit card than a credit card, as you are usually required to put down a deposit before using them. And the credit limits are low…typically under $500.
But if you regularly use this card and then pay it off regularly, you can build a history of payments, and your credit score can rise over time.
Self Credit Builder
One of the best apps for building credit, Self allows you to create a loan to yourself, which you can make monthly payments on for 12 or 24 months. At the end of the loan term, you receive the money back in the form of a CD account.
Each payment is reported to the three main credit bureaus, helping establish a payment history. The loans aren’t free, though, with a $9 administrative fee, and a high interest rate (14% - 15%). Essentially you will pay the interest on your account balance in return for establishing credit over the next year or two.
If you don’t have a credit history, Self is a simple credit builder account without the need for a credit card or other debt balance.
Learn more about apps like Self Credit Builder here.
What credit score do you need?
Your credit score can open the door to loan approvals, lower interest rates, and the ability to qualify for more premium credit cards. There are different credit score requirements for different types of loans and credit products.
We’ll be covering the minimum score needed for the most common purchases and credit products below:
What credit score is needed to buy a house?
You will most likely need a credit score of around 620 or higher to qualify for a conventional home loan. And while there are several other factors to consider when qualifying for a home loan, your credit score is one of the most important.
There are ways to buy a home if your credit score is lower, and some loans that may require a higher score as well. It all depends on your type of loan, and what your lender deems acceptable. Here are some of the loan types and credit scores needed:
- FHA Loan - 500 credit score with 10% down, or 580 score with 3.5% down.
- VA Loan - No stated minimum, but typically 620 credit score needed
- USDA Loans - No stated minimum, but usually a 580 credit score needed
These listed credit scores are guidelines and not a hard and fast rule. As always, check with your lender for the exact requirements of your loan.
What credit score is needed to buy a car?
There are no industry minimums required for auto loans, and credit requirements will vary by lender. Auto loans have a wide variety of options, from banks and credit unions, to dealer financing, and some will even offer loans to borrowers with bad credit or no credit history.
The best loan rates will be reserved for those with excellent credit profiles and high scores, so be prepared to pay a higher rate if your score is low. And while some lenders work with borrowers with poor credit, you may need to provide a larger down payment as well.
What credit score is needed for renting?
There are no set credit score limits for renting a home or apartment, but most landlords will run a credit check, and having a higher credit score will help you qualify. If there are multiple applicants for a location, the higher your score, the higher your chances of being selected as well.
According to RentCafe, the average credit score of renters range from 550 to 715+, with higher scores being required in more affluent cities (such as New York City). This doesn’t mean you can’t rent a place with a low score, but you will need to be able to explain your low score to a potential landlord.
In addition to your score, landlords are also interested in any other red flags on your credit report, such as late payments, collections, a history of bankruptcy, or high debt balances.
What credit score is needed for a personal loan?
Personal loans come in all shapes and sizes, but most of them need a credit score of at least 580 to qualify. That said, there are companies that offer loans to applicants with credit scores as low as 300 (the lowest possible FICO score), or for those with very limited credit history.
Companies like Upstart don’t require a minimum score, but will look at other factors in addition to a credit score to qualify applicants. This may include your job history, income, and other factors. Keep in mind that the lower you score, the higher you rate might be. And there may also be a large up-front fee for getting the loan, which could be up to 10% of the loan amount.
What credit score is needed for a home equity loan?
A home equity line of credit (HELOC) is a loan that is secured by your house as collateral. These loans can vary in their requirements, and will depend on your income, current debt loan balances, house value, and other factors.
But you will most likely need a credit score of 680 or higher to qualify for a HELOC. And some lenders may require a higher score. While it may be possible to get a loan with a lower credit score, the rates are typically much higher, and the lean terms may not be the best.
What credit score is needed for Affirm?
Affirm is a buy now, pay later service that lets you pay off your online purchases over time. There is no stated credit score minimum required to qualify for Affirm, though users report qualifying with a score as low as 550.
As with most loans, Affirm will review more than just your credit score, including your income, debt-to-income ratio (DTI), credit utilization, payments history, and more. To get the most favorable terms, having a score of 650 or higher will increase your chances of better rates with Affirm.
What credit score is needed for Best Buy?
Best Buy does not specify a minimum credit score for being approved for the Best Buy credit card, but typically a score above 600 is required for most major credit cards. Several user reports show that a score above 600 will qualify for the card, but approval is based on more than just your credit score.
You will need sufficient income, a history of on-time payments, and a fairly clean credit report to get the Best Buy card. And remember, the lower your score and income, the lower your credit limit may be.
What credit score is needed for Home Depot?
Home Depot does not have a stated minimum for the Home Depot credit card, though a score above 600 will increase your chances of approval. Similar to most major credit cards, you will need to have sufficient income, lower credit utilization, and limited negative marks on your credit report.
How long does it take to build credit?
Building your credit can take from six months up to a couple of years, especially if you don’t have a credit history yet. You need to have at least one credit account open (such as a credit card or auto loan), and make on-time payments regularly. The lender will need to be reporting to at least one of the three major credit bureaus to establish a credit score.
Once you have established your credit history and score, it may take several years to build a solid credit profile and increase your score into the excellent range. You will need to add a few more credit accounts and establish a positive payment history with them to build your credit enough to qualify for the most favorable lending terms.
How is your credit score calculated?
Your credit score is calculated based on a combination of financial details, but there are five main factors that are considered:
- Payment history. Your payment history is the most important factor, and represents 35% of your credit score. Having an established history of on-time payments to your creditors will improve your score, while having late payments or a defaulted account will hurt your score.
- Credit utilization ratio. Your credit utilization is a calculation of how much credit you have available vs. how much debt you have. Keeping your credit utilization under 30% will help your score.
- Age of credit history. The length of your credit history is considered in your score, which is why keeping your oldest credit accounts opened (such as your first credit card) can help your score.
- Credit mix. Having a mix of different types of credit accounts can help your score. This may include several types of loans, credit cards, or other accounts. This shows that you can keep multiple types of accounts in good standing.
- New credit accounts. Opening a new credit account can impact your score, as it changes your risk profile in the eyes of the lender. This may not have a big impact, but multiple new accounts in a short time span can lower your score. On the flipside, opening a new credit account may lower your credit utilization as you have more credit available (as long as you don’t max it out!).
Improving your credit score is worth it. It can save you hundreds in interest when borrowing, and can give you access to the best terms and services from products like store cards, car loans, and mortgages. And a better score can help you get a higher credit limit on your favorite credit cards as well.
There are several ways to approach improving your score, but focusing on a few impactful tactics can give you the most improvement in the shortest time frame. And adding in a quality credit building app or tool can help you get there even quicker.