Your credit score is, in reality, your financial report card. It is meant to inform the people looking at your finances, like lenders, if you are trustworthy enough or are likely to default on your loans. Having a good credit score means that you can easily acquire a loan and borrow at a favorable interest rate. If your credit score is terrible, you are most likely to get higher interest rates on your mortgage or your credit card, and in the worst-case scenario, you can get a loan application declined.
There are different ways to redeem yourself from a bad credit score. Here are five ways to improve your credit score and enjoy the benefits of a good credit score.
Credit Report Improvement Checklist
1. Pay Your Bills on Time
The most critical factor determining your credit score is your payment/repayment history. Lenders want to be sure that if they give you a loan, you can make payment6 on time. They, therefore, analyze your bills and previous loan repayment. A missed payment drags down your credit score between 100 to 300 points. Late payments mean that you cannot be trusted to pay your bills on time.
To improve your credit score after a patch where money was tight, and you had missed or paid your bills late, you need to limit your spending and start a new history where you pay your bills on time and repay any outstanding loans.
2. Manage Your Debts
Debt utilization is the amount of available credit that one uses. Keeping this debt utilization low is critical and boosts your credit score. Therefore, keeping this balance below 30% of your credit limits is essential. To improve your credit score, ensure that you create a plan to pay off any balance on your credit cards. If you have a credit card or get a new one, ensure that you don’t use it as much, and this way, you will be using less of the available credit, which ultimately improves your credit health.
Strategize Before Getting A New Credit Card
It’s important to realize that the average interest rate on credit cards influences your credit score. According to Lantern by SoFi, opening a new credit card can hurt or help your credit score. Lenders believe that those who acquire different credit cards within a short time are more likely to have higher credit risk. Lenders use the hard credit check and your account’s average age to determine your credit score.
For those without credit cards, it’s advisable to get one and make a small purchase that you can comfortably pay for every month. Having more than one credit card that you responsibly pay for helps improve your credit score since the lenders use your payment report to determine your credit score. It will ultimately boost your credit score.
3. Maintain Old Accounts
Your credit score is determined by the length of your credit history and the ages of different accounts. More extended credit history will culminate in a good credit score. Closing old accounts lower the average age of your accounts. Keep your old credit cards active even when you don’t need them, make small purchases, and pay their balances on time to boost your credit score.
4. Patience pays
A good credit score does not just happen. Maybe a few months, it takes time for the positive effects of opening a credit card and making timely payments.
A Good Credit Score
The use of mixed data calculates a credit score. It includes credit history, credit length, and payment history. If the score ranges above 760, it is regarded as a good credit score. The range ensures that you are approved for small interest rates with favorable terms.