Best Ways to Improve Your Credit Score

385

Something that every one of us has, yet many do not know about, is their credit score. A credit score is basically a way that financial institutions can measure how good you are at managing your finances. The higher your credit score, the more willing banks and other creditors will be to offer you a new loan. Unfortunately, many peoples’ credit scores are not the best. That is why we put together this list of the best ways to improve your credit score.

What is a credit score?

As previously mentioned, a credit score is just a number that indicates how good you are at managing your finances. Your credit score is calculated by several credit reporting agencies. Each agency calculates credit score a little differently. Plus, financial institutions look at different credit rating agency scores.

Your credit score is calculated by looking at several different factors. These categories include: payment history, amounts owed, length of credit history, new credit, and credit mix. Everything from how often you pay your bills, if you have any late payments, number of open loans, and more go into what your credit score is. If you are unsure what your credit score is, you can use free online services that will tell you. One of these companies is CreditKarma. You may even be able to get your bank or credit card company to tell you what your credit score is. Before you try to improve your credit score, make sure you know what it is.

What is a good credit score?

Credit scores generally range from 300 to 850. 850 is the best credit score, while 300 could mean you have no credit history or you have very poor credit. It is important to remember that everyone’s financial and credit situation is different.

If you have a higher credit score, banks and other lenders will more likely give you better terms on a loan. This could mean a lower interest rate, or longer term (i.e. 48 months instead of 36 months).

According to Equifax, one of the credit reporting agencies, anyone with a credit score of 670 and up are lower risk borrowers. Those with credit scores from 580 to 669 and subprime borrowers. If your credit score is under 580, then you will probably have a hard time finding a lender. Even if you have a strong credit score, you can still improve your credit score. Those with low or poor credit are not the only ones that can try to improve their score.

How can you improve your credit score?

There are several different ways that you can improve your credit score. Here are the top ones.

Review Credit History

Your credit history shows financial activity like number of loans and the amount you have outstanding. It gives possible creditors insight into you ability to pay back your loans over time.

To review your credit history, you can get a copy of your credit report from the two major consumer credit bureaus: Equifax and TransUnion. There are many sites online that can offer you free credit reports. These sites can also notify you of any changes in your credit score.

Once you receive and review your report, highlight factors affecting your credit score. Some things to look out for include payment history, utilization rate, and age of credit history. Knowing these details will help you make informed decisions about your credit score.

Pay Bills Early

Paying your bills early is a great way to improve your credit score. One of the highest weighted factors that goes into your credit score is payment history. This is why you need to pay your bills on time, or early. At all costs, do not pay your bills late.

To pay your bills early, you can do things like making a budget in excel, set reminders, and schedule payments automatically. You can also pay your bills every time you get paid. If you have a lot of debt and are looking to improve your credit score by paying your bills early, you may want to look into using a debt snowball spreadsheet.

Learn About Credit Utilization

Another way to boost your credit score is to understand how much credit you’ve utilized. Credit utilization is that portion of credit you’re using out of your limited credit at a point in time. It’s measured in percentage and takes 30% in the FICO grading system. So, it’s needed to maintain a good credit score.

Experts recommend keeping it below 30%—ideally, the lower your credit utilization score (CUS), the higher your actual credit score. Ways to reduce your CUS include clearing your debts quickly, requesting higher credit limits, and ensuring the use of credit cards to pay off balances.

Report Credit Report Errors

Slips, lapses, oversights, and other human errors are bound to happen in your credit report. That being said, it is important to identify errors and report them.

Generally, it takes credit bureaus 30 days to resolve disputes. Therefore, the process may take a while, but it’s worth it. You should especially report errors if you’re trying to clear a loan and improve your credit score to apply for a larger loan. It’s also reasonable to resolve credit issues and improve your credit score before applying for a mortgage.

Improve Your Credit Score Today!

A credit score is a report on your credit health. The higher it moves, the greater your credit opportunities and interest benefits. Therefore, it’s important to boost your credit score.

There are many ways you can boost your credit score. These methods include reviewing your credit history, knowing how credit utilization works, and reporting errors. Aside from credit benefits, raising your score also helps enhance your financial health in general.