Approximately 31% of Americans have a subprime credit score, a FICO^® Score below 670.¹ . If you’re in that group, you know how it’s significantly harder to qualify for accounts like a mortgage or auto loan and even when you do qualify for a loan you often pay higher interest rates and fees.

Unfortunately, bad credit tends to trap you in a vicious cycle too. Low credit scores mean high-interest rates. High-interest rates mean larger monthly payments. Larger payments are easier to miss, and missed payments mean lower credit scores. 

If you want to know how to raise your credit score by 200 points or more, break the vicious debt cycle, and maintain a good credit score indefinitely, read this guide.

Factors that Affect Your Credit Score

Credit scores are just a numerical representation of how attractive a borrower is to lenders. Lenders use many different formulas to calculate credit scores, but most rely on the same five factors.

The components of a FICO® credit score are:

• Payment history: The more consistent you are about making payments on time and in full, the better your credit score. 
• Amounts owed: The lower your outstanding balances, the higher your credit will be. Lenders often consider the amounts owed in relation to your original balance or available credit limit (your credit ‘utilization’).
• Length of credit history: In general, the longer your credit history, the higher your credit score. For example, lenders prefer someone who shows ten years of good behavior to someone with only ten months.
• New credit: When you apply for new credit, the creditor will most likely pull your credit report. That will trigger a hard credit inquiry. Too many hard inquiries in a short period maylower your score. Tip: Most credit builder loans won’t trigger an inquiry.
• Credit mix: Having a healthy mix of accounts, including revolving debt and installment debt, will increase your credit score. Revolving debt includes credit cards, while mortgages and auto loans fall under installment debt.

If you improve your credit report in each of the five factors, your credit scores will go up.

Note that even though you have different credit scores across credit bureaus, they’ll usually correlate with each other. What increases one will usually increase the others.

For example, a lender who uses a VantageScore 3.0 will find a different score for you than a lender who uses a FICO^® credit score. But if you pay off a big credit card balance, both scores will go up to some degree.

How Long It Will Take to Raise Your Credit Score

Everyone’s credit history and credit rating are different, so it’s difficult to say for sure how long it will take to raise your credit score by 200 points. 

However, if you follow the right strategies, you’ll see noticeable improvement somewhere between a few months to a year. We weren’t satisfied with that estimate, though, so we decided to narrow it down.

We studied over 50,000 Credit Strong clients who got a Credit Strong credit builder loan and tracked their results. Here’s what we found:

• 25 points was the average increase across customers in their FICO Score 8 within three months.
• 70 points was the average FICO Score 8 increase for account holders who made all their payments on time for 12 months.

Your results will depend on your starting point and how well you execute your credit improvement plan. However, if you make all your payments on time and maintain healthy habits, it’s only a matter of time before you reach a good credit score.

Now, let’s go over some steps you can take to increase your credit score. 

How to Raise Your Credit Score by 200 Points

1. Get More Credit Accounts

One common cause of a low credit score is a “thin credit profile”. That means you don’t have enough activity in your credit report for lenders to have confidence in you.

If you’re a recent college graduate who didn’t take on student loan debt or credit card debt in college, you’ll probably have this issue. The best way to address this is to open up a new account. This can be a credit card, credit builder loan, personal loan, or mortgage. 

The positive effects of acquiring multiple new accounts are two-fold:

• Adding new accounts increases the diversity of your credit mix
• Building a positive payment history with multiple credit accounts has a more significant impact than just one account

It can be hard to qualify for new credit when you have a low credit score or no credit history. To be successful, target more accessible accounts. A good way to get started can be a secured credit card or a credit builder loan.

A secured credit card requires an upfront cash deposit, usually equivalent to its credit limit. They’re much easier to qualify for since the lender can keep the deposit if you fail to pay your balance. A credit card is an example of a revolving credit account.

A credit builder loan follows a similar strategy. The lender will hold onto the loan amount until the final payment goes through. Once the loan balance and interest are fully paid off, the funds are released to the borrower. 

That’s the opposite of a typical installment loan. But its purpose is very different. Credit builder loans help establish good payment history for people with no credit history, thin credit history, or a history of poor credit. Credit Strong’s accounts are great examples of a credit builder loan. You establish payment history with all three major credit bureaus, then get the loan funds at the end. 

Whichever accounts that build credit you choose to open, make sure you can afford them. The last thing you want is to overextend yourself and miss a monthly payment.

2. Pay Down High Credit Card Balances

Opening more credit accounts is a great way to improve your credit score over a couple of months because it doesn’t require a large chunk of money upfront. Paying down your credit card balances, on the other hand, can have a longer-term project. 

If your credit cards are maxed out, then paying them down will improve your financial situation and your credit score rapidly. Credit utilization is an important credit scoring factor, so using more than 30% of your available credit hurts your credit score. 

There are two common approaches people use to pay off their debts over the long term:

• The debt snowball method: Pay off your accounts in order of lowest to highest outstanding balance.
• The debt avalanche method: Pay off your accounts in order of highest to lowest interest rate.

The debt snowball is widely considered a more satisfying approach. It helps some people feel like they’re making progress by paying off accounts in full. 

However, the debt avalanche method will save you more money. If you have an account that’s accruing interest at a much higher rate than the rest, it would make sense to tackle that one first, regardless of the account balance.

Here’s a quick example. Imagine that you have three credit cards with balances of $500, $2,000, and $5,000. Their interest rates are 18%, 20%, and 25%, respectively.

If you took the debt snowball approach, you’d target the credit card with the $500 balance first and pay it off quickly.

If you took the debt avalanche approach, you’d target the credit card with the $5,000 balance first. It’s interest rate is 5% – 7% higher than the others, but it would take you ten times as long to get the satisfaction of paying it off.

Truthfully, the difference in savings between the two is likely to be negligible. It’s usually much more important to stick with the process and pay off your debts than to do so in a specific order.

Paying off accounts isn’t the only way to feel like you’re making progress. You can also measure your progress with a metric called your credit utilization ratio. To calculate it, divide all of your outstanding credit balances by your total credit limit.

Lenders do so as part of their lending process a.k.a. underwriting, so it’s a helpful metric to know. In general, a lower utilization ratio is best. 

Under 30% is good. 

Below 10% is even better!

Focusing on reducing your total credit utilization ratio can help give you a sense of progress even if you’re not paying off entire accounts very quickly. That way, you can have the best of both approaches.

3. Always Make On-Time Payments

Payment history is the most significant factor in your FICO score. Even if you do well in all of the other factors, a poor payment history will leave your credit score in shambles.

Your payment history makes up 35% of your FICO Score 8, the most frequently used credit score. That’s equal to the weight given to the length of  credit history, new credit activities, and credit mix combined!

So do whatever you can to make sure your payments are always on time. Here are some tips:

• Build an emergency fund with at least a few months expenses.
• Avoid spending more on your credit cards than you have in cash.
• Don’t take out any loan with monthly payments that you’ll struggle to repay. Stay within your budget!
• Set up automatic payments for your credit cards and installment loans.

If you follow the strategies above, you’ll improve your credit profile and credit score..

4. Keep the Accounts that You Already Have

One mistake that people often make is to close their credit accounts after paying off their balances. It’s common for those with a secured credit card or one with an annual fee.

Unfortunately, doing so can come back to bite you. When you close a credit account, you have less open accounts on your credit report. Many lenders will turn down your credit application if you don’t have enough open accounts in your name.

Also, closed accounts don’t contribute to the length of your credit history. So your average credit history length could go down if you close your oldest accounts. 

Since length of credit history is a credit score factor, it could decrease your credit score immediately.

If you have a secured credit card, it’s sometimes possible to get your deposit back without closing the account. Your credit card company might allow you to roll over into an unsecured card after six months to a year of good behavior.

If they don’t offer the upgrade after a year or so, you can reach out and request one. If you’re successful, they’ll refund the deposit without closing the account. They may also increase your available credit, which will help your credit utilization. Double win!

As for cards with an annual fee, it’s up to you to decide whether they’re worth the cost. If you still use it and can accrue enough in rewards to cover the fee, it’s probably worth keeping.

5. Dispute Incorrect Items on Your Credit Report

The information in your credit report is the basis for your credit score, so you want to make sure it’s as accurate as possible.

Unfortunately, credit bureaus aren’t infallible. Creditors might also report inaccurate information to the credit bureaus, or fail to report something that they should have reported.

It’s always a good idea to check for credit report errors that may be hurting your credit scores. Reading through the report is also helpful for figuring out what areas of your credit profile may need the most work.

There are three credit reports, one from each major credit bureau (or credit reporting agency): Experian, Equifax, and TransUnion.

Once a year, you can get a free copy of your credit report from AnnualCreditReport.com. Due to COVID, the site is offering them once a week until April 2022.

Note that you’ll probably see slightly different information in each of your credit reports. That’s nothing to be worried about.

Creditors don’t always report their activity to all three bureaus. For example, one might only report to Equifax, while another may report to Experian and TransUnion.

If you do see something incorrect on your credit report, you should always investigate it and dispute it. In a worse-case scenario, it can be a sign of identity theft. 

To dispute an error on your credit report, you’ll have to send a formal letter to the credit bureau that produced it. Your letter should include:

• Your identifying information (name and address)
• A clear definition of each mistake you found
• Any documentation you have to support your claims

Credit bureaus generally have 30 days to complete their investigation of the mistake after you send them a letter, so it shouldn’t take too long for you to see results. 

You can find copies of every bureau’s dispute forms at the Federal Trade Commission website.

Conclusion: Be Patient and Trust the Process

Building credit is a marathon, not a sprint. You have to maintain consistent discipline for months at a time to make progress. Even once you’ve succeeded and increased your score, you can’t fall asleep at the wheel!

That said, once you understand the credit improvement process and put your systems in place, the whole thing becomes a lot easier. Keep at it, and you’ll get to reap all the benefits of a good credit score sooner than you might think.

¹ Source: 2020 Experian Consumer Credit Review

CreditStrong helps improve your credit and can positively impact the factors that determine 90% of your FICO score.

Start Building credit today