If you’re looking to improve your credit score, you’re not alone.
A good credit score can open up a world of financial opportunities, from getting a low-interest rate on a car loan to securing a mortgage for your dream home.
But improving your credit score isn’t always easy.
There are many things you can do to boost your score, like through legitimate credit repair companies.
But it takes time and patience. We’re going to look at the top five tips to improve your credit score.
How is Credit Score Determined?
Your credit score is a number that represents your creditworthiness. The higher your score, the more likely you are to repay your debts and the better interest rate you’ll get from lenders.
Lenders use this information to assess whether or not they should give you a loan and how attractive you will be as a borrower.
Your credit report is divided into five categories, called “buckets” in the industry.
These are:
- Payment history – 35 percent of your score
- Amounts owed – 30 percent of your score
- Length of credit history – 15 percent of your score
- New credit accounts – 10 percent of your score
- Types of credit used – 10 percent of your score
These different buckets are weighted differently based on how they’re affecting your ability to repay the money you’ve borrowed.
For example, if you’ve gone through a lot of hard times financially then it may be difficult for you to make regular payments on time.
In this case, your payment history will be a more heavily weighted part of your credit score.
If you have a long credit history, then you’ll be a better candidate to take out a loan or open up new credit accounts.
But if you’ve recently started applying for many different types of credit, it may make lenders believe that you’re in financial trouble and not a good candidate to take out loans.
How to Improve Your Credit Score
1. Pay Your Bills On Time
Simply put, your credit score reflects how you’ve managed your finances in the past.
If you pay all of your bills on time every month, this will demonstrate to lenders that you are reliable and responsible with money.
And if you have a history of paying late or missing payments, there’s no better time to turn things around than now.
2. Reduce the Amount of Debt You Carry
It’s possible to have too much of a good thing, even when it comes to credit cards.
Having multiple credit cards with high balances will send up red flags for lenders, who may wonder if you’re taking on more debt than you can pay off.
It’s best to have just one or two credit cards with manageable balances that you can pay off each month.
3. Apply for Credit Sparingly
While applying for new lines of credit is a good way to build up your overall credit history, applying for too many products in a short period of time will hurt your score by adding too much new credit to your file.
On the other hand, making small purchases with your credit card or taking out a car loan can help improve your score over time.
4. Check Your Credit Regularly
One of the best things you can do for your credit score is to check it regularly. The more often you check your report, the more likely you’ll be able to fix any errors that may appear on it.
This includes:
- Inaccurate personal information
- Inaccurate account history
- Unauthorized accounts
- Age of your credit accounts
Perhaps the most important tip of all, check your credit report at least once a year to ensure that all of your personal information is accurate and that you only have the accounts you know about.
If you regularly pay your bills on time, maintain a low credit card balance and check your report at least once a year, you’ll be well on your way to improving your credit score.
These small steps add up over time and can make it easier for you to line up the financing you need in the future.
Resources
Resources
https://www.investopedia.com/how-to-improve-your-credit-score-4590097