7 Steps To Improve Your Credit Score Now
TTaking the time to review and improve your credit rating can improve your financial situation and help you get through an economic setback.
Raising your credit score can lead to lower interest rates on everything from a mortgage or personal loan to credit cards and student loans. A lower interest rate means lower monthly payments, freeing up money you can use to bolster your emergency fund, pay off debt, or save for a college fund or retirement.
On the other hand, a low credit score can not only make it difficult to get a loan or credit card, but it can also be used against you when trying to rent an apartment or find a new job.
Raising your credit score takes time and patience, but the rewards are well worth it. Use these tips to help you get started on the path to a better financial future.
How to increase your credit score
Your credit score is intended to tell lenders whether you are a high risk or a low risk borrower. FICO and VantageScore (the score developed by the three major credit bureaus – Experian, TransUnion and Equifax) will range from 300 to 850. A score of 700 is considered “good.” The higher your credit score, the better the interest rates and terms that will be offered to you by lenders.
1. Pay your bills on time
According to Experian, payment history is the most influential factor for both your FICO and your VantageScore. From a lender’s perspective, an established history of timely payments is a good indicator that you will also be managing future debts responsibly.
âYou want to avoid things like late payments, defaults, repossessions, foreclosures and third-party collections,â says John Ulzheimer, credit expert, formerly of FICO and Equifax. âAnd filing for bankruptcy is a horrible idea. Anything that indicates non-fulfillment of a liability is going to hurt your credit score.
2. Keep your credit utilization rate low
Weigh your balances against your credit limit to make sure you’re not using too much available credit, a practice that can indicate risk.
Ulzheimer recommends trying to maintain a 10% utilization rate. âThe higher this ratio, the less points you will earn in this category and your scores will absolutely suffer,â he says. “In fact, the people with the highest average FICO scores have 7% utilization.”
The date that your credit card provider reports to the credit bureaus can also affect your usage rate.
Ulzheimer points out that FICO’s scoring systems do not distinguish between those who pay in full each month and those who have a balance. Your usage rate at the time your transmitter reports is what is used for your score. VantageScore, however, considers whether you pay in full or transfer your balance from month to month.
If you’re struggling with high balances and growing interest payments on your cards, consider consolidating with a 0% introductory rate balance transfer credit card, but make sure you know when the rate is due. will increase and by how much.
3. Leave old accounts open
Once you’ve finally gotten rid of your student debt or paid off your car loan, you might be anxious to wipe it off your report.
But as long as your payments are on time and complete, these debt records can really help your credit score. The same goes for your credit card accounts.
âA fully paid account is a good thing; However, closing an account is not something consumers should do automatically in the hopes that it will have a positive impact on their credit score, âsays Nancy Bistritz-Balkan, vice president of communications and consumer education at Equifax. âHaving an account with a long history and a solid history of paying bills on time, every time, are the types of responsible habits that lenders and creditors look for. “
Closing a credit card account can actually lower your credit score because you will now have a lower maximum credit limit. If you still have balances on other cards or loans, your usage rate will increase. You’d better keep the card with a balance of $ 0.
Any bad debts that can negatively impact your score are automatically deleted over time. According to Ulzheimer, bankruptcies can’t stay on your credit report for more than 10 years, while late payments and defaults such as collections, repossessions, foreclosures and settlements stay on your report for seven. year.
4. Take advantage of score improvement programs
The number of accounts and the average age of your accounts are two important factors in your credit score, which can put those with limited credit histories at a disadvantage.
Experian Boost and UltraFICO are programs that allow consumers to improve their credit profile with other financial information.
After opting for Experian Boost, you can connect your banking information online and allow the credit bureau to add telecommunications and utility payment histories to your report. UltraFICO allows you to allow your bank details, such as checking and savings accounts, to be included in your report when calculating your score.
5. Apply only for the credit you need
Whenever you apply for a new line of credit, a serious investigation is done on your report. This type of survey temporarily lowers your score. Applying just to see if you’re approved or because you’ve received a prequalified credit offer isn’t a good idea.
If it is a single hard loan, the decrease will be slight. However, a series of serious inquiries could signal lenders that you are taking on too much debt. According to a representative from TransUnion, the effects of hard credit on your score can last for up to 12 months.
If you need to apply for new credit, research your likelihood of approval to make sure you’re a good candidate before you apply. If possible, get pre-approved or pre-qualified, as in many cases this results in soft credit rather than hard. Soft Draws Don’t Affect Your Credit Score You don’t want to risk lowering your score for a denied claim.
You should also refrain from applying for multiple credit cards in a short period of time or before taking out a large loan such as a mortgage.
When shopping for a mortgage, auto or personal loan, you can minimize inquiries by performing rate comparisons in a short period of time. Requests for the same type of loan within a specified time will only appear as one firm request. According to FICO, this period can vary from 14 to 45 days.
6. Be patient
You won’t dramatically improve your credit score overnight. The best way to achieve a great score is to develop good long-term credit habits.
According to Ulzheimer, two influencing factors that go into your score are the average age of the information and the oldest count in your report.
âYou’ll really need to have credit for a few decades before you max out these categories,â Ulzheimer said. “It takes a long, long time to improve a bad score and it takes a very short time to destroy a good score.”
Practice good habits like paying off your balances on time, maintaining a low usage rate, and requesting credit only when you need it, and you should see these practices reflected in your score over time.
7. Monitor your credit
When you view your own credit, an inquiry is made which does not affect your credit like inquiries do.
Tracking how your score fluctuates every few months can help you understand how well you are managing your credit and whether you need to make any changes. However, you shouldn’t base your financial decisions on your credit score alone.
âI wouldn’t recommend hanging every decision on a credit score, but hanging every decision on what matters,â said Jeff Richardson, spokesperson for VantageScore. âFocusing on your financial health and the health of your family is the number one priority. “
How to check your credit report
You can get a free copy of your report at annualcreditreport.com.
Under normal circumstances, you might get one free report from each of the three major credit bureaus (Experian, TransUnion, and Equifax) per year. However, in response to COVID-19, you can access a free weekly report from one of the offices until April 2022.
Check your credit report for errors, which could lower your score. If you find any errors, such as payments that weren’t recorded, you can have them removed by disputing the information directly with the credit bureau. They are required to investigate any dispute and resolve it within a reasonable time. Keep in mind, however, that only incorrect information can be removed from your report.
According to Richardson, every credit report will contain the information you need to improve your score. âThere are four or five bulleted statements on your credit profile that can help you build a roadmap of what to do if you’re really in a position where you need to improve your score,â he says. .
You may also find a numeric or text code in your report, but no additional information as to what it represents. These are factor codes and represent items that can lower your score. VantageScore has a free website, ReasonCode.org, where you can enter the code for any credit report and get an explanation of what it means and tips on how to resolve the issue.
If you are unsure if your report contains errors or if you are having trouble resolving the issues yourself, you can seek expert help. Credit repair companies not only know how to identify and correct misinformation, but can also help lessen the impact of legitimate negatives on your report.
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