Consumer Alert: The First Step to Improve Your Credit Score in One Month

How do you feel? If today’s consumer sentiment numbers are any indicator, you’re pretty depressed. The survey results fell to a six-month low. So this consumer alert is meant to empower you. I thought we all need to feel empowered, and there are few things that can do that like having a credit score so fantastic that lenders are lining up to give you money.

There are five factors that determine your credit score. The biggest factor, at 35 percent, is your payment behavior. Next, at 30 percent, is the amount of debt owed compared to your available credit; This is your credit utilization ratio. Your credit history is at 15 percent. Your credit mix accounts for 10 percent. For example, in addition to revolving debt like credit card debt, you also want amortizing debt like car loans or end-date loans.

Finally, how much new credit are you applying for? That’s 10 percent of your score. According to Jarrett Felton, personal finance expert and founder of wealth management company Invessent, the quickest way to see improvement in your credit score is to focus on your credit utilization.

“Any credit card you have or any outstanding debt you make payments on is reported to the credit bureaus on a monthly basis,” Felton said. “And you just want to know when the closing date is on your credit cards and whether it’s a personal loan or a car loan when they report, so you want to know when they get the good news that your utilization is down 50 percent to 20 percent. Your credit score can literally change in 30 days. There is hope.”

Remember that credit card companies want a utilization rate of 30 percent or less. According to Felton, one way to improve this ratio is to call your bank and ask them to increase your credit limit. Or you may want to take out a personal loan to pay off your credit card debt. Personal loan interest rates are typically lower, allowing you to pay off debt faster. It will also do two things. Reduce your utilization while diversifying the type of debt you have.

This route can also have disadvantages. Personal loan interest rates are not always lower. And personal loans come with fees – application fees, processing fees, prepayment penalties and more. So you need to carefully weigh the pros and cons. Click here for the Associated Press picks for the best personal loans: https://apnews.com/buyline-personal-finance/article/best-personal-loans

In short, we don’t need to think of our credit score as this nebulous number created by some FICO devil on high. If we know how it arises, we have the power to change it.