It’s not always easy to boost your credit score quickly. Often, it takes some time and a little bit of work. But, if you have one or more maxed out credit cards or you run a high balance on your credit cards, then these simple tactics can boost your credit score fast.
The problem with having high balance is your debt ratio or sometimes what the credit bureaus call the utilization ratio.
Your debt ratio accounts for 30% of your overall credit score according to models used by the nation’s three credit bureaus and the Fair Isaac Corporation, which created the industry standard, FICO Score. The debt ratio is the second most important factor the credit bureaus use to calculate your credit score behind making your payments on time.
The good news is that improving your debt ratio is very easy to fix, and it is actually the quickest “credit killer” you can fix that will have the most impact on your score.
So what exactly is that the debt ratio? The credit bureaus determine your debt ratio by dividing your available credit limit and how much of your credit cards’ limits you use.
Let’s say you have a credit card limit of $10,000. If you use $5,000 of that credit limit, you have a 50% utilization ratio. Now, that’s not too bad, but it’s not great either. Ideally, you want your utilization rate to be below 30%. Below 10% is even better.
So how do you accomplish getting your utilization rate below 30%, let alone below 10%? There are a couple of ways to get your utilization rate down fast.
First, you can transfer the balance of one of your credit cards to a new or existing credit card. By moving a high balance credit card to a lower balance credit card, you are lowering your use of available credit.
Of course, this isn’t really changing your utilization rate. The three credit bureaus– TransUnion, Equifax, and Experian– look at your total available credit and credit card balances. Moving balances from one credit card to another won’t change your total debt balance and credit limits; it simply shifts them around. But, you might see a change for a month while your credit report catches up to new data provided by your lenders depending on who reports first.
Quick side note: if you have any existing debt this can actually help you save on your APR as well.
Another way to lower your utilization rate is to pay down the balance that you run on your credit card. Paying down your balances can take longer, and you won’t see your score boost quite as quickly. However, it’s an effective long-term strategy to reducing your utilization rate and raising your credit score.
Realistically, taking care of your debt ratio is the highest leverage point in your credit. Why? Because with some parts of your credit it takes a certain period to improve them no matter what. That’s just the way it is. For example, a negative report on your credit score such as a late payment or bankruptcy stays on your credit report for seven years.