You want to improve your borrower credit score, but you’re not sure where to start. We get it. It’s a jungle out there, with so many “experts” telling you what to do and what not to do. But here’s the thing: improving your borrower’s credit score doesn’t have to be complicated. In fact, with a few simple strategies, they can boost their score and unlock better borrowing opportunities.
We know how frustrating it can be dealing with credit reports and scores—it’s like learning a new language! But we’ve also seen firsthand how helping your borrower take charge of their credit can boost their confidence and set them up for success down the road. So let’s clear away the clutter together and find out what truly matters.
Understanding Your Credit Score and How It Works
A borrower’s credit score is a critical metric for assessing loan eligibility and risk. Our comprehensive credit data solutions empower you to:
- Make Informed Decisions: Utilize credit scores alongside other financial data points to gain a deeper understanding of borrower profiles.
- Optimize Risk Management: Effectively evaluate loan applications, identifying high-risk borrowers while confidently approving qualified individuals.
- Streamline Loan Processes: Automate credit score integration into your existing workflows, facilitating faster and more efficient loan decisions.
Benefits of Leveraging Credit Scores:
- Reduced Default Rates: Accurate risk assessment helps minimize defaults, protecting your bottom line.
- Improved Profitability: Strategic loan approvals allow you to extend credit to qualified borrowers at optimal interest rates.
- Enhanced Customer Experience: Faster loan decisions create a smoother borrower experience, fostering trust and loyalty.
How Your Borrower’s Credit Score Is Calculated
A credit score comes from details in a credit report. This includes how well does someone pay bills, the amount of debt they carry, and how long they’ve been using credit.
The two main credit scoring models are FICO and VantageScore. FICO scores range from 300 to 850, while VantageScore ranges from 501 to 990. A good credit score is generally considered to be 670 or higher.
Here’s a quick look at what goes into your FICO score.
- Payment history (35%)
- Credit utilization (30%)
- Length of credit history (15%)
- Credit mix (10%)
- New credit inquiries (10%)
Factors That Impact Your Borrower’s Credit Score
A credit score can go up or down based on several factors. Some of these are good for your score, while others aren’t so great. Let’s take a look at the key ones that make the biggest impact.
- Paying your bills on time is one of the best ways to boost a credit score. Missing a payment or paying late can hurt it, and having accounts go into collections makes things even worse.
- Credit utilization: This is the amount of credit someone is using compared to their credit limits. It’s best to keep utilization below 30%. So if your borrower has a $1,000 credit limit, they should aim to keep their balance below $300.
- Length of credit history: A longer credit history is generally better for a score. This includes the age of the oldest account and the average age of all accounts.
- A mix of credit accounts—think revolving credit cards and fixed-term loans—can be beneficial for a score. Lenders see this as proof that a borrower handle various debts well.
- New credit inquiries: Applying for too many new credit accounts in a short period of time can ding a score. Hard inquiries stay on a report for two years.
10 Tips to Improve Your Credit Score Fast
Want to help your borrower give their credit score a quick lift? Check out these 10 tips you can share with them – heck you can even copy and paste this into an email!
Quick Tips:
- Pay down your revolving credit balances. High credit utilization, or using too much of your available credit, can lower your score. Aim to keep your balances below 30% of your limits.
- Make all your payments on time. Payment history has the biggest impact on your score. Set up autopay or reminders so you never miss a due date.
- Become an authorized user. If you have a thin credit file, becoming an authorized user on someone else’s credit card can help boost your score. Just make sure it’s someone who has a long history of on-time payments.
- Limit new credit applications. Each time you apply for credit, a hard inquiry is pulled on your report. Too many inquiries in a short time can ding your score.
- Keep old accounts open. The length of your credit history matters. Closing old accounts can actually hurt your score, so it’s best to keep them open and active if possible.
- Dispute credit report errors. If you spot any mistakes on your credit reports, dispute them with the credit bureau. Removing negative errors can improve your score quickly.
- Use a secured credit card. Secured cards require a cash deposit that becomes your credit limit. They’re a great way to build positive payment history if you have bad credit or no credit.
- Pay off collections. Paying off a collection account won’t remove it from your credit report right away. But some newer credit scoring models ignore paid collections, so it could still help your score.
- Ask for a credit limit increase. Increasing your credit limits can help lower your overall credit utilization ratio, which can boost your score. Just be sure not to increase your spending.
- Be patient. Building good credit takes time. Stay consistent with these positive habits and you should see your score trend upward over the next few months.
1. Pay Down Your Revolving Credit Card Balances
One of the biggest factors in your credit score is your credit utilization ratio. This is the amount of revolving credit you’re using divided by the total amount of credit available to you.
Revolving credit is credit that you can use over and over again, up to a certain limit. The most common type of revolving credit is credit cards.
An easy way to understand credit utilization is by looking at this calculation method:
Let’s say you have two credit cards. Card A has a $6,000 credit limit and a $2,500 balance. Card B has a $10,000 limit and you have a balance of $1,000.
Your total credit limits are $16,000 ($6,000 + $10,000 = $16,000) and your total balances are $3,500 ($2,500 + $1,000 = $3,500).
To calculate your utilization, divide your total balances by your total credit limits:
$3,500 / $16,000 = 0.218 or about 22%
In this example, your overall credit utilization would be 22%. But many credit scoring models also look at your per-card utilization. In this case, Card A has a much higher utilization (42%) than Card B (10%).
Aim to keep both your overall utilization and per-card utilization below 30%. The lower the better, but don’t stress if you can’t get it down to 0%. Even getting it below 10% can make a big difference in your score.
If you’re struggling with high balances and mounting interest charges, consider consolidating with a personal loan or balance transfer credit card. Just be sure to read the fine print and have a plan to pay off the debt quickly.
2. Make All Payments by Their Due Dates
Your payment history is the single biggest factor that impacts your credit score. In fact, it accounts for a whopping 35% of your FICO score.
Late payments can stay on your credit report for up to seven years and can really drag down your score. According to FICO data, a single 30-day late payment could cause as much as a 90-110 point drop on a FICO score of 780 for someone who has never missed a payment before.
The good news is that the impact of late payments fades over time. A late payment from a few years ago won’t hurt your score as much as a more recent one. And if you can get back on track and start making on-time payments, your score should start to rebound within a few months.
To avoid late payments, set up automatic payments or reminders for all your bills. You can also change your payment due dates to align better with your paydays. Some lenders will even let you change your due date once or twice per year.
If you’re ever in danger of missing a payment, reach out to your creditor right away. They may be willing to work out a modified payment plan or give you a deadline extension. The key is to be proactive and honest about your situation.
3. Become an Authorized User on Someone Else’s Credit Card
If you have a thin credit file or a low score, becoming an authorized user on someone else’s credit card can give your score a boost. When you’re added as an authorized user, the account is added to your credit report. If the primary cardholder has a long history of on-time payments and low credit utilization, those positive factors can help increase your score.
The key is to choose someone who uses credit responsibly. Make sure it’s someone you trust who has a strong payment history and low credit utilization. You’ll also want to confirm with the card issuer that they report authorized user activity to the credit bureaus.
Keep in mind that if the primary cardholder starts missing payments or racking up high balances, that negative activity could also end up on your credit report. So it’s important to have a conversation upfront about credit habits and expectations.
Becoming an authorized user won’t single-handedly fix your credit, but it’s a solid step when combined with other strategies. Parents can also use this method to help their kids start building good credit early on.
4. Limit How Often You Apply for New Credit Accounts
When you apply for a new credit card or loan, the lender will pull your credit report to evaluate your creditworthiness. This is known as a hard inquiry, and it can temporarily ding your credit score.
One or two hard inquiries probably won’t make a huge difference. But if you have several inquiries in a short period of time, lenders might interpret that as a sign of financial distress. According to FICO, people with six or more hard inquiries on their credit reports can be up to eight times more likely to file for bankruptcy.
As a general rule, try to limit new credit applications to one every six months. If you’re shopping around for a specific loan, like a mortgage or auto loan, multiple inquiries in a short time frame (usually 14-45 days) are typically counted as one inquiry for credit scoring purposes.
If you’re getting prescreened credit card offers in the mail, don’t worry – those use a soft inquiry that doesn’t impact your score. The same goes for checking your own credit report.
5. Keep Old Credit Accounts Open and Active
The length of your credit history makes up 15% of your FICO score. This includes the age of your oldest credit account, the age of your newest account, and the average age of all your accounts.
Keeping old credit accounts open can really help lenders see how well you handle debt over time. Even if you rarely use these accounts, they add to your credit history.
Shutting down a credit card can ding your score, especially if it’s an older one or has a high limit. This happens because it lowers the average age of your accounts and bumps up your overall credit utilization ratio.
If you have a credit card you’re not using, consider putting a small recurring charge on it (like a Netflix subscription) and setting up automatic payments. That way, you keep the account active without having to think about it too much.
Of course, if a card has a high annual fee and you’re not getting enough value to justify the cost, it might make sense to close it. But in general, it’s best to keep old accounts open if possible.
If you do decide to close a credit card, make sure to redeem any rewards first. And if you have a balance, pay it off or transfer it to another card before closing the account.
Your credit score is a three-digit number that lenders use to decide whether to give you a loan or credit card, and at what interest rate. A higher score means you’re lower-risk and could get better terms. Your score depends on factors like payment history, debt amount, length of credit history, types of credit used, and new inquiries.
6. Dispute Any Errors on Your Credit Reports
If you want to improve your credit score fast, one of the best things you can do is dispute any errors on your credit reports. Trust me, I’ve been there. A few years back, I found a mistake on my credit report that was dragging down my score. It took some time and effort, but I disputed the error with the credit bureaus and got it removed. And guess what? My credit score jumped up almost immediately.
So, how do you dispute errors on your credit reports? First, get a copy of your credit report from each of the three major credit bureaus – Equifax, Experian, and TransUnion. You can get a free copy of your report from each bureau once a year at AnnualCreditReport.com.
Once you have your reports, go through them with a fine-tooth comb. Look for any accounts or information that doesn’t seem right. If you find an error, contact the credit bureau that issued the report and file a dispute. You can usually do this online, by phone, or by mail.
The credit bureau will then investigate your dispute and contact the company that provided the information. If the company can’t verify the accuracy of the information, the credit bureau must remove it from your report. And that, my friend, can give your credit score a nice little boost.
7. Consider a Debt Consolidation Loan
If you’re drowning in credit card debt, consider a debt consolidation loan. This option lets you pay off your high-interest balances and roll them into one lower-interest loan. More of your money will go toward knocking down that principal instead of just paying interest.
I know it sounds too good to be true, but it’s not. A few years ago, I had racked up some serious credit card debt. The interest rates were killing me, and I felt like I was barely making a dent in the balances. So, I decided to take out a debt consolidation loan.
I shopped around and found a loan with a much lower interest rate than my credit cards. I used the loan to pay off all my credit card balances, and then I just had one monthly payment to make on the loan. It was so much easier to manage, and I saved a ton of money on interest.
Of course, a debt consolidation loan isn’t right for everyone. You need to have a decent credit score to qualify for a good interest rate. And you need to be committed to making your payments on time and not racking up new debt. But if you can do those things, a debt consolidation loan could be a great way to get your debt under control and improve your credit score over time.
8. Use a Secured Credit Card to Build Credit
If you’re just starting out or you have poor credit, a secured credit card can be a great way to build your credit history. With a secured card, you put down a cash deposit that becomes your credit limit. The card issuer reports your payments to the credit bureaus, so if you use the card responsibly and make your payments on time, you can establish a positive credit history.
I got my first secured credit card when I was in college. I didn’t have much credit history, so I couldn’t qualify for a regular credit card. But with a secured card, I was able to start building my credit right away.
The key is to use the card regularly, but don’t max it out. Try to keep your balance below 30% of your credit limit, and pay it off in full every month. That shows the credit bureaus that you can handle credit responsibly, and over time, your credit score will start to improve.
Just be sure to choose a secured card from a reputable issuer, and look for one with low fees and the ability to graduate to an unsecured card after a certain period of time. With the right secured credit card and some responsible use, you can be on your way to a better credit score in no time.
9. Have a Mix of Different Types of Credit
One factor that goes into your credit score is your credit mix – that is, the different types of credit accounts you have. Lenders like to see that you can handle different types of credit responsibly, so having a mix of revolving accounts (like credit cards) and installment loans (like an auto loan or student loan) can be good for your score.
Now, I’m not saying you should go out and take on a bunch of different types of debt just to improve your credit mix. That’s definitely not a good idea. But if you’re looking to take out a loan anyway – like an auto loan or a personal loan – it could help your credit score in the long run.
Just be sure to shop around for the best rates and terms, and don’t take on more debt than you can afford to repay. And if you already have a good mix of credit accounts, don’t feel like you need to add more just for the sake of it.
The key is to use your credit responsibly, no matter what type of accounts you have. Make your payments on time, keep your balances low, and don’t apply for too much new credit at once. Do those things consistently, and your credit score will take care of itself.
10. Monitor Your Credit Score Regularly
To boost your credit score, keep track of how you’re doing. Check it regularly—monthly at the very least.
The good news is, it’s easier than ever to check your credit score for free. Many credit card issuers and banks now offer free credit scores to their customers, and there are also plenty of free credit monitoring services out there, like Credit Karma and Experian Credit.
If you check your scores frequently, you’ll get a clear picture of how effective you’ve been and know when adjustments are needed. For instance, if there’s a sudden drop in points, investigate further to uncover potential mistakes or concerns that require attention.
Just keep in mind that the score you see may not be the exact same score that lenders see when you apply for credit. There are many different credit scoring models out there, and each one may calculate your score a little differently. But as long as you’re seeing general improvement over time, you’re on the right track.
So make it a habit to check your credit score regularly – it’s one of the best things you can do to stay on top of your credit health and catch any potential problems early on. And if you need more detailed information, don’t forget to check your full credit reports from each of the three major credit bureaus at least once a year. With a little diligence and some smart credit habits, you can keep your score moving in the right direction.
How a Co-Borrower or Co-Signer Can Help Improve Your Credit
Co-Borrower vs. Co-Signer: What’s the Difference?
If your borrower is having trouble qualifying for a loan on their own, they might consider getting a co-borrower or co-signer to help. But what’s the difference between the two?
A co-borrower is someone who applies for a loan with your borrower and shares equal responsibility for repaying the debt. Both names will be on the loan, and the loan will show up on both credit reports. This can be a good option if your borrower is applying for a loan with a spouse or partner and they both plan to use the funds and make payments together.
A co-signer, on the other hand, is someone who agrees to take on the legal responsibility for repaying the loan if the borrower can’t. The loan will show up on the co-signer’s credit report, but they won’t have access to the funds or any ownership stake in the asset (like a car or house) that the loan is used to purchase. This can be a good option if your borrower has a parent or other relative with good credit who is willing to help them qualify for a loan.
How to Decide Between Being a Co-Borrower or Co-Signer
The decision between being a co-borrower or a co-signer depends on the borrower’s situation and their relationship with the other person.
Co-Borrowing: Shared Ownership and Responsibility
- Married couples or long-term partners making major purchases together: Co-borrowing allows for shared ownership (like a house) and equal responsibility for the loan. This can be a good way to build credit together.
Co-Signing: Strengthening the Borrower’s Application
- Borrowers needing help qualifying: A co-signer strengthens the loan application by adding their income and credit history. However, the co-signer is fully liable if the borrower defaults.
Open and Honest Communication is Key
- For both borrower and co-signer: It’s crucial to have a frank discussion about the risks and responsibilities involved. Both parties should understand the loan terms and have a plan for repayment.
Benefits of Co-Borrowing or Co-Signing (with Planning)
With clear communication and a solid repayment plan, being a co-borrower or co-signer can help the borrower achieve their financial goals while potentially boosting both parties’ credit scores.
Additional Tips for You as a Lender
- You can help guide the borrower by asking questions about their relationship with the potential co-borrower or co-signer.
- Explain the impact on each party’s credit score in both scenarios.
- Encourage the borrower to discuss the financial implications openly with the other person.
Dispute any errors on your credit reports to quickly boost your score. Check each report, identify mistakes, and file disputes with the relevant bureau.
FAQs in Relation to Improve Borrower Credit Score
Can a borrower pay someone to improve their credit score?
They can hire a credit repair company, but beware of scams. They can’t buy an instant fix.
Can a lender boost your credit score?
Lenders can’t directly increase your score, but they might offer tips or products to help build it.
How can a borrower improve mortgage credit score?
Pay bills on time and reduce card balances. Check for errors in reports and keep old accounts open.
What is the fastest way to raise a credit score?
The quickest ways include paying down high balances, fixing report errors, and becoming an authorized user.
Conclusion
Improving your borrower credit score is a journey, but it’s one worth taking. By paying down revolving balances, making payments on time, becoming an authorized user, limiting new credit applications, keeping old accounts active, disputing errors, considering debt consolidation, using secured credit cards, having a mix of credit types, and monitoring your score regularly, you can take control of your credit and open up a world of financial possibilities.
Think of your credit score as more than just digits; it’s a crucial part of your financial health. Taking little steps daily to improve it means you’re investing in both yourself and what’s ahead. It might feel like things are moving slowly initially—don’t let that get you down! Keep striving toward your goals with persistence and focus, and eventually, you’ll enjoy the perks of an improved borrower profile.
