5 Ways to Improve your Credit Score
A good credit score is essential to your financial security as it gives lenders a quick indication of how carefully you use your credit. The higher your credit score, the easier it will be to obtain new loans or get lines of credit approved. It can essentially help you secure the lowest possible interest rates when you borrow money.
Check your credit report regularly
When it comes to boosting your credit, knowing what works in your favor (or against you) is critical. You may get a free copy of your credit report from AnnualCreditReport.com once a year. Next steps should include filtering what is harming your score and what is positively impacting your credit score.
Make all your payments on time
Credit scores that are based on the FICO model are used by most lenders, and they're based on five different criteria:
- Payment history (35%)
- Credit usage (30%)
- Age of credit accounts (15%)
- Credit mix (10%)
- New credit inquiries (10%)
Your credit score is largely determined by your payment history. This is why it's so important to ensure that you're paying your bills on time so that your credit score isn't damaged.
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Keep your balances low
Your credit utilization is the percent of your credit limit that you're utilizing at any given moment. It's the second most important element in FICO credit score calculations, after payment history.
The simplest approach to keep your credit utilization in check is to pay off your credit card bills on time every month. If you can't always accomplish so, a good starting point is to keep your overall outstanding balance at 30% or less of your entire credit limit. Then focus on lowering it down to 10% or less, which is considered optimal for boosting your FICO score.
Limit your applications for new credit
There are two types of inquiries into your credit history: hard and soft.
Checking your credit, giving a potential employer permission to do so, financial institutions doing checks on you to see whether they want to offer you pre-approved credit offers, and credit card companies running checks on your file to determine whether they wish to propose you for pre-approved credit offers are all examples of soft inquiries. These types of inquiries have no impact on your score.
Hard inquiries, on the other hand, can have a negative effect on your credit score for anything from a few months to two years. A new credit card application, for example, is a hard inquiry.
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Just because you have a bad credit score, it does not mean you still don't have costs to cover. And with each card you apply for and get rejected for, your credit score can be further damaged. This can be incredibly frustrating if you are working through your credit reports and trying to rebuild your credit.
Don't close unused credit card accounts
The length of time you have had your credit accounts affects your credit score. The longer your average credit age, the better your score will be.
Closing outdated credit cards while still having debt on other cards may lower your available credit and raise your credit utilization ratio, potentially lowering your score by a few points.
Improving your credit score isn't easy, but it's a worthwhile goal to have if you want to obtain a loan for a major purchase like a new automobile or house. The impacts of improving your score might take weeks, if not months, to become visible, but when they do, you'll be happy that you made the effort!
A healthy credit score is vital to your financial wellbeing. It gives lenders an indication of how well you manage your credit. The higher your credit score, the easier it will be for you to get new loans or lines of credit approved.
A better credit score can also help you get the lowest possible interest rates when you borrow money. Follow the tips in this article to improve your credit score and enjoy the benefits of a strong financial foundation!