High interest rates and elevated inflation since the US Federal Reserve's aggressive monetary tightening campaign have translated to more missed payments and rising debt levels. Moreover, last year's average FICO credit score declined for the first time in a decade, as outstanding credit card balances transitioning to delinquencies have continued to increase since 2022.
A credit score determines your creditworthiness. Lenders check your credit profile to understand how you carry and repay debt responsibly. Factors like missed payments, high utilisation of your credit balance, and applying for new cards too frequently impact credit scores.
Lenders report your credit card usage to credit bureaus like TransUnion and Equifax. These bureaus maintain your credit score based on the popular FICO model devised by the Fair Isaac Corporation. Over 90% of lenders check FICO credit scores to determine if an individual is eligible for credit products.
Suppose you seek to improve your credit score but need help to reduce your credit card utilisation or are stuck with monthly minimum payments. In that case, here are some strategies that provide fast results.
1. Become An Authorised User
You can ask your friend or family member with a good credit score and a high credit limit to make you an authorised user of their card. Of course, you must explain to the person why you need this favour and the terms of using their card. However, this approach is the most effective for those with a thin credit file (new credit profile).
The account holder, who agreed to make you an authorised user, doesn't have to let you use the card or provide you with the account number for your credit score to improve. You can start seeing results once you become an authorised user and the lender of that credit account reports activities to the bureaus.
The best results can be achieved if the account holder's credit usage is reported to all the major credit bureaus like TransUnion, Experian, and Equifax.
Bear in mind that the impact of this strategy may be limited if you already have a years-old credit report and are trying to recover from mismanaging debt or poor lender remarks.
2. Check If Eligible For Higher Credit Limits
Bumping your credit limit lowers your credit utilisation as your balance remains unchanged. Credit utilisation has a 30% weightage when determining your FICO credit score right after repayment history (35%).
Your chances of securing a higher credit limit on your existing cards improve if you have received a pay hike or are in good standing with your lenders. You may contact them to increase the limit and request a soft credit check to avoid impacting your credit score.
While positive results can be as early as when the new limit is reported to credit bureaus, know that a higher limit comes with a bigger responsibility to keep a check on risky spending habits.
3. Report Rent Payments To Credit Bureaus
If you make timely rent payments, why not share that effort with the credit bureaus and get it included in your credit report?
All major bureaus will add your rental payment details to your credit report if they receive the information. Whether initiated by tenants or landlords, rent-reporting services will include your timely rental payments to your credit reports.
It is essential to know that credit scoring companies like FICO and VantageScore differ in using rental payment data to calculate credit scores. The most popular FICO 8 scoring model doesn't count rental payments as a factor. Still, the FICO 9 and FICO 10 models, alongside scoring systems at VantageScore, will account for rents to calculate your credit score.
Even if the FICO 8 score doesn't consider rental payments, having a long record of timely rent payments on your credit report can only help. Furthermore, having rental payment data on your credit report can also be helpful if you rent again since landlords may prefer tenants who can pay on time.
Using rent-reporting services like Azibo, Bilt Rewards, or Self can take a few months to build a record of rental payments and see a positive impact on your credit score.
4. Enroll In A Credit Builder Program
The concept of a credit builder scheme is simply lending money to yourself to boost your credit score. You choose the amount you want to repay at a particular interest rate into a separate account over a fixed duration, and each payment is reported to credit bureaus by the service provider.
The lender will repay the principal amount and possibly a part of the interest payments after the repayment tenure.
However, credit score and reporting platform Credit Sesame has taken the credit builder program to the next level. Unlike others, Credit Sesame's patented credit builder eliminates the concept of debt by reporting purchases like groceries, gas, or utilities on a debit card to credit agencies.
When you enrol, the provider doesn't carry out a credit check or ask for a security deposit, and there's no question of any interest payments since you add money to a Sesame Cash prepaid debit card.
Spending on that card also makes you eligible for cashback rewards, no-fee ATM withdrawals, and purchase price protection coverage as you build credit with everyday purchases.
A good credit score has many more benefits than helping in securing low-interest loans and insurance premiums. A high score can also complement your job application, especially if the role is in finance, or even help avail of cellphone contracts or utilities without the hassle of paying a security deposit.
While some of these strategies may take weeks to months to show positive results, they are unlikely to cost you any additional money and take minimal effort to implement.
Disclaimer: Our digital media content is for informational purposes only and not investment advice. Please conduct your own analysis or seek professional advice before investing. Remember, investments are subject to market risks and past performance doesn't indicate future returns.
