Your credit score is one of few crucial determinants that show your financial stability and health. This credit score lets lenders know how responsibly you use credit. If you have a good score, you will easily be approved for new loans or any latest lines of credit.
In addition, the higher your credit score, the more opportunities you get for the lowest available interest rates when you borrow. If you’re looking for ways to improve your current credit score, this is the article for you.
There are several simple steps you need to follow. With a little bit of effort, you can achieve a good credit score. Here are five ways to improve your current credit score. These tips were assembled by Good People, Bad Credit.
The Significance Of A Good Credit Score
A great credit score will help most people save thousands of dollars. People with a good credit score will get better mortgage rates, auto loans, and everything that involves financing. Such individuals are considered lower-risk borrowers, and banks compete for their business and offer them better perks, rates, fees, etc.
On the other hand, people with a bad credit score are high-risk borrowers. Similarly, they have only a few lenders competing for them and more businesses getting away with illegally high annual percentage rates (APRs). A poor rental score can affect your ability to find a good rental car, housing, and even life insurance, as your credit score directly affects your insurance score too.
Now that you know the significance of a good credit score, let’s get into what you can do to achieve it.
1. Assess Your Credit Score
To check where the range you sit your credit score, it is important for you to review it and see if it is working in your favour or not. Checking credit history is essential. The first step is to get a copy of your credit report from one of the three major national credit bureaus. You can do this yearly and that too for free. It will help you in reviewing what’s making your credit score bad.
There are a few things that make a higher credit score. These include:
- Low balances on your credit cards
- A history of on-time payments
- Older credit accounts
- A mix of different credit card and loan accounts
- Minimal inquiries for new credit
Major credit score detractors are collections, judgments, high credit, and balances, and missed or late payments.
Instantly improving your credit score
- The first step is to see the reason behind a low score
- Pay down your revolving credit instantly so that you can lower your credit utilization percentage
- Factors such as late payments should not exist
- Ensure you get added to an old account as an authorized user – a friend or family member can do this.
2. Ensure A Lower Credit Utilization (30% or less)
Credit utilization states the amount of credit you are using at a given point. Apart from your payment history, this is the second most crucial factor that is taken into account in FICO credit score calculations. The easiest way to keep everything in check is to pay all your credit card balances by the end of each month.
If you are not able to do that, then a good practice is to maintain a 30% or less credit limit. And then you can always work your way on coming down to as less as 10-15%, which is perfect for improving your score.
3. Restrict Requests
You get two types of inquiries on your credit history that are commonly referred to as soft or hard inquiries. A soft inquiry is when you keep track of your credit or give a potential employer or a financial institution that you are in business with to check your credit and credit card companies so that they can decide whether to send you a pre-approved credit offer or not. These inquiries do not in any way impact your credit score.
On the other hand, a hard inquiry has the potential to affect your credit score. These usually include applications for a new credit card, a loan, a mortgage, or any other form of credit. The usual perception of a hard inquiry is that banks could get the impression that you need money because you’re broke or going through tough financial situations. It can be damaging for your credit score and is a great risk. When you’re focusing on improving your credit score, you should avoid applying for credit for a while.
4. Utilize A Slim Credit File
Having a slim credit file states that you don’t have the required credit history of generating a specific credit score. But that’s not an issue as you can earn a good credit score.
Experian Boost – it is a current program that will help you collect financial data that is not on your credit score, such as utility payments, banking history, etc. and will calculate your Experian FICO credit score since it is free to use and for such people who have a good history or limited credit.
UltraFICO is also a free program that will use your banking history to make your FICO score. The things that can aid the process are avoiding overdrafts, paying your bills on time, maintaining a bank account overtime, etc.
5. Establish Your Debt
If you have quite a few outstanding debts, there’s no need to worry, as you can use them to your benefit. Take out a debt consolidation loan from the bank or credit union and make it a point to pay off all the debt. When you do this, you will be left with one payment to make – and if you get a lower rate on loan, you can easily pay your debt faster. This will improve your credit and your credit score.
Improving your credit score is a good start. It helps you stay in good shape (financially) and you can enjoy all kinds of perks. These five ways will help you get to the score you need.