How to Raise Your Credit Score in 2-3 months

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When I was a kid, my uncle told me something that I will never forget.  It was a simple truism that has stuck with me since he said it.  I came home from school one day and my uncle had come by to visit us. He lived in a different state, so I rarely got to see him as much as I would have like to. 

My mom had already gone to work because she worked swing-shift.  My Uncle was in the kitchen when I got home.  I had brought a free lunch form home from school for her to sign and needed to return it to school the next day.  Fearing she would forget to sign it, I asked my Uncle to sign it for me.  When I handed it to him he looked it over and looked back at me and said, “Kirk, there’s no free lunch.”  Puzzled at his statement, I retorted, “yes there is, all you have to do is sign the form and I get free lunch at school.”  Again, my Uncle said, "No boy, there’s no free lunch, someone is paying for this – it might not be you, but someone is paying for it.”  “Nothing in this world is free.”

I told that brief story because as I grew up and started living my life I learned that his words were very true.  Nothing in this world is free – and that includes raising your credit score.  There are lots of ways to improve your credit and all of them take time – there are no super-fast ways to increase your fico score outside of becoming an authorized user on someone else’s account (I wrote an article on that a few months ago) or purchasing seasoned trade lines.  Both methods work, and both can raise your fico score fast.  However, becoming an authorized user can be difficult if you don’t have a family member or friend who is willing to do it, and purchasing a trade line is flat out expensive. 

Furthermore it is difficult to know which companies are reputable and which ones are scams. 
The method I am going to share here will cost you approximately $500 - $1,200 but it doesn’t involve dealing with family or a shady trade line seller who might take you for a bunch of your hard-earned money.  Just follow the steps below and you will see a significant increase in your fico score in 2-3 months, possibly even sooner!

Step one: Purchase a CD for $1000.00 –$1200.00. A Certificate of Deposit allows the owner to deposit a certain amount of money, (usually a minimum of $1000) as an investment for a fixed length of time, ranging from three months to five years. CDs are federally insured and pay higher rates of return than simple savings accounts.

Step 2: Ask the loan officer how long it will take them to process the CD.  Once you find out, come back to the bank after the CD has been processed and ask for a loan using the CD as collateral.  The bank will cut you a check in the amount of the Cd. Deposit the check into your saving account and arrange with the loan officer to allow for automatic withdrawals in the agreed upon monthly payment for the term of the CD. That’s it. 

Rates vary, but typically, the borrower will pay a premium of several percentage rates to borrow their own money. In other words, if the CD is paying 6 percent, for example, the cost of borrowing might be 9 percent.

Secured loan method

1. Deposit $300 – $500.00 into your bank account. 
2. Take out a secured loan for that exact amount.
3. Either deposit the money immediately into a saving account and arrange for automatic monthly withdrawals to pay back the loan or take the money and make monthly payments on your own (if you trust yourself to make the payments on time every month).

OR. Take that money from the first loan and go to another bank and do the exact same thing, taking out another secured loan.  Do this with as many banks as you can manage. I suggest no more than three or four.

Remember, you absolutely must be disciplined and organized enough to make your payments on time each month or this will blow up in your face.  I suggest you organize it so the money your using to do this is exclusively for this and this ALONE.  This is going to raise your fico score fast.  In six months you are going to see big jump in your score. 

Know and understand the factors that affect your FICO score. 

 

·         Payment History: 35% Capacity/Utilization

·         Amounts Owed: 30%

·         Length of Credit History: 15%

·         New Credit: 10%

·         Types of Credit in Use: 10%

Look at the factors listed on the pie chart above.  The chart represents the factors that generally make up how your credit file is scored.  You will see that your payment history makes up the highest percentage (35%).  In any analysis of the fico algorithm, payment history usually carries the most weight of all the factors that make up your score. It is important to point out that these figures provided by Fair Isaac are supposedly for the “General Population,” and because there are different score cards, as mentioned above, the relative importance of each category can be different depending on where the fico system categorizes you. 


Each of these categories also represents some very typical thresholds for disbursement of better or worse interest rates and for approval. For example, a person with a 400 credit score would probably not be approved for any kind of loan, whereas a person with a 775 would not only be approved for most any loans, but they would also probably not require much (if any) documentation and would get the best market interest rates available. Some lenders will vary the above categories, but the concept is almost universal: the higher your score, the better your interest rates and the increased likelihood you will be approved—because your score represents a numerical figure that indicates how likely it is that you will repay a credit obligation. 


So, what goes into a score? Obviously if you've ever seen a credit report, the bureaus have lots of information about your finances and credit history, as well as personal information. Still, many people are unfamiliar with how each of these items weighs in with respect to credit scoring, and for a very long time consumers were left COMPLETELY in the dark about how FICO scores are calculated then, due to many FTC complaints by customers, FICO released a little bit of information. While this information is vague, there is a great deal of research that has expanded upon this knowledge base. A basic breakdown of how FICO Scores are calculated is as follows:

Another important point to make on this subject is that score cards can change. For example, if someone right out of bankruptcy pays their bills on time for two full years, they may see their score as high as 720+, but a few months after that their score could significantly drop as they are placed back among people who pay their bills on time always, since now they will seem relatively worse than the others in their score card. Over time as one's financial circumstances remain static and their payment behaviors remain the same, the likelihood of score card 'jumping' is significantly reduced.  Because of the different impact of each category, and because different score card profiles will often result in varying credit scores, the cleanest credit report is not always the highest scoring one.