Whether you want to buy a home or enjoy low interest rates on loans and credit cards, it is essential to have a good credit score. In general, a credit score above 700 is considered good. A credit score that is 800 or above is considered excellent. The vast majority of credit scores fall in the 600 to 700 range. Fortunately, if your credit score is currently less than ideal, you still have hope. While you won’t be able to improve your credit score overnight, you can boost your credit score significantly within a few years or even months. Here are a few tips that will show you how to improve your credit score.
1.) Pay Attention To Your Credit Card Balances
The first thing that you should do to improve your credit score is pay attention to the balances on your credit cards. Your credit score is largely determined by the amount of revolving credit you have versus the amount of credit you’re using. You should keep this percentage as low as possible to boost your credit score. The optimal percentage is 30% or lower.
Essentially, you need to work on paying down your credit card balances as much as possible and keeping those balances low. If you have multiple balances, you may be able to help your score by consolidating all of these balances with a personal loan.
Keep in mind that your utilization ratio may still be high even if you pay your balance in full each month. There are some issuers that use the balance printed on your statement to report to the bureau. Therefore, your monthly balance will still have an impact on your credit score and your credit history even if you pay your balances in full each month. Fortunately, some credit card issuers allow an authorized user to make multiple payments in the same month.
2.) Pay Your Bills On Time
If you want to have a good credit score, you need to pay your bills on time every single month. While this may seem obvious, there are many people who underestimate the importance of timely payments.
Your record for paying your bills on time is included in your credit report. Therefore, if you don’t pay your bills on time it will damage your credit and your credit score. Paying one bill late won’t have a disastrous effect on your credit. However, if you make paying your bills late a habit, you can expect your credit score to drop significantly over time.
Believe it or not, this extends to items that one normally doesn’t associate with credit reporting. For example, if you don’t turn in your library books on time or have an unpaid bill, the library may ultimately call a collections agency. The agency may end up putting the unpaid bill on your credit report. Even if a creditor doesn’t normally report to the bureaus, they can still call a collections agency and have the bill put on a collections account.
If you’re trying to save money for a major purchase like a car or a house, it’s smart to put your money in your savings account. However, you shouldn’t neglect your regular bills just to put money toward the major purchase.
3.) Eliminate Unnecessary Credit Card Balances
Many people have too many unnecessary credit card balances. If you’re one of these people, chances are you would be able to improve your credit score by getting rid of a few of these balances. It’s better to have a larger balance on one credit card than small balances on a number of different credit cards. One factor that impacts your credit score is how many of your credit cards have a balance. Instead of charging $100 on one card and $25 on another card, you should use just one credit card for all your charges. Ideally, you should use the card that has the best interest rate.
Therefore, you should go hunting for all of your credit cards with smaller balances. Pay all of these balances off as soon as possible. Choose one or two credit cards to keep and get rid of the rest. That way, you won’t be hurting your credit report by having too many balances.
4.) Keep Old Debt On Your Credit Report
A common misbelief that many people harbor is that old credit on a credit report is bad. As soon as they get their car or home paid off, they get on the phone trying to get the old credit eliminated from their credit report.
Negative items have a bad impact on your credit score. Most negative items will disappear from the credit report after about seven years. However, it’s not a good idea to try to get rid of old open accounts on a credit report just because they’re paid.
Keep in mind that there is a difference between good debt and bad debt. Good debt refers to any debt that has been paid on time and handled well. Good credit has a positive impact on your credit score. Therefore, you want to have a lengthy history of good credit to improve your credit score. Therefore, you should leave good accounts and old debt on your credit score for as long as possible. You also shouldn’t close old accounts if you have a good record of repayment.
5.) Avoid Indicating Risk
If you want to improve your credit score, you don’t want to do anything that indicates risk. For example, you want to avoid missing payments at all costs. Also, you want to remain consistent when it comes to charges and repayment. If you charge more than usually do or pay less than normally do, this may hint at risk and decrease your credit score.
In general, you want to avoid any actions that could cause your card issuer to view you as a risky customer. For example, taking cash advances or using your credit card at businesses that could be a sign of money stress in the future.
For example, if you use your credit card at a pawn shop or to pay for the services of a divorce attorney, this could be a sign of future money stress in the eyes of your card issuer.
6.) Check Your Credit Report for Accuracy
You should check your credit report thoroughly if your credit score is lower than you expected. Even credit reports from a credit bureau are not always accurate and major mistakes are frequently made. The Federal Trade Commission conducted a study in 2012 and found that 20% of consumers have at least one error on their credit reports. In 2015, the Federal Trade Commission conducted a follow-up study and found most of the consumers who had an error on their credit score still believe that their credit score is inaccurate.
Credit scores depend entirely on the data in a credit report. Therefore, it is essential that all of your information in your credit report is accurate. Simple mistakes can have a major impact on your credit score.
Every individual has three credit scores, one from each of the major credit reporting agencies. Therefore, you should order a credit report from TransUnion, Experian, and Equifax. Fortunately, due to the Fair Credit Reporting Act, all individuals are entitled to a free copy of their credit score every year from all three credit reporting agencies. You can use Credit.com or AnnualCreditReport.com to view your credit report.
A smart move is to stagger the three free credit reports by ordering one credit report every four months. That way, you will be able to monitor your credit score all year for free.
7.) Do All of Your Rate Shopping Quickly
If you’re shopping for car, home, or student loans, you should do your rate shopping as quickly as possible.
In general, applying for credit can cause your credit score to dip a little, particularly when a lender does a hard inquiry. This dip typically lasts about 12 months. The reason for this is that individuals who make multiple applications for a loan usually need more credit in comparison to individuals who only make one application.
However, scoring formulas account for this when it comes to mortgage, student, and auto loans. Lenders commonly use the FICO score, which is a credit score that ignores any inquiries made a month prior to scoring. If some inquiries are older than a month, it will count the inquiries made in a shopping period as a single inquiry. The length of this shopping period varies. The shopping period is 45 days for lenders using newer scoring software. The shopping period is only 14 days for lenders using older software.
8.) Be Patient
Finally, when it comes to improving your credit score, it is incredibly important to be patient.If you know you’re going to be looking for new credit soon, it’s good to be focused on improving your credit score. However, if you aren’t going to be making a big purchase in the near future, using your credit cards responsibly and paying your bills on time is sufficient for maintaining an excellent credit score. Take a look at your credit report if you’re planning on making a big purchase within a year or so in order to have time to resolve any issues you might find.
While you should keep in mind that the score you receive from your bank may not be identical to the score your lender uses, it will be fairly close. Therefore, the score you get from your bank or credit reporting service is a good indication of your credit management. Pay attention to the factors that prevented your credit score from being higher. Focus on these things to determine how to improve your credit score.
Due to the Dodd-frank Wall Street Reform and Consumer Protection Act, lenders are required to show you the credit score that it used if you are denied for credit. The same is true if you end up not qualifying for the best rate.
As you can see, there are many things that you can do to improve your credit score in time for that big purchase you have your heart set on. As long as you follow these tips for building credit for a year or even a few months, you should see major improvements to your credit score. If you want to learn more about how you can use my FICO to monitor your credit and how to improve your credit score, don’t hesitate to contact them.