5 Ways to Improve Your Credit Score
A good credit score can open doors to lower interest rates and better credit opportunities, but it’s more than that. These days, plenty of people check your credit. Landlords check credit scores before renting to new tenants. Even some employers check credit scores before deciding to hire new people. It is no wonder people want to improve their credit score.
The most widely used credit scores are FICO scores. A credit score is calculated based upon information contained in your credit report. Credit reports sometimes have errors in them. These mistakes could be lowering your credit score by dozens or even hundreds of points. Before you worry about improving your credit score, make sure it is accurate by checking your credit reports for errors.
There are three different credit bureaus, so you can have three different credit scores at the same time depending on what information has been reported to each bureau. If your credit score is close to what you need for approval but just not quite where you need it, ask the lender to try another bureau’s credit report. Your score might be higher on a different report, and some lenders will consider multiple credit reports. Otherwise, to improve your credit score, you need to make positive changes to your credit report.
Unfortunately, there are no shortcuts to a better credit score, but there are things you can do that will improve your credit now and in the future. Here are five ways to improve your credit score.
- Make Payments On Time – The biggest factor in your credit score is your payment history. No matter how bad your credit score, or how many payments you missed in the past, each on-time payment improves your credit score a little bit. In addition, older information counts less toward your credit score than more recent information. With every month that goes by, those missed payments become less important. Even bankruptcies disappear from your credit report after 10 years. For some people, the issue is not that they can’t pay; it is that they don’t pay, either because they forgot or got too busy. Take advantage of automatic payments wherever it is offered and in a way that fits your financial situation. Most companies will allow you to choose the date of your automatic payment so that you can make sure the timing is right, such as after a pay day.
- Pay Down Credit Lines – While making on-time payments is critical to improving your long-term credit score, paying down some or all of an existing loan or credit line affects your credit almost instantly. Whether it is a credit card, a credit line from a store or retailer, or even a car loan, paying down even one credit line can improve your score right away. That is because another major factor in your credit score is credit utilization, or how much of your available credit you are using. Your credit score calculates your overall credit utilization as a percentage of your total available credit. A person using 10% of their total available credit will have a much higher score than someone using 80% of their total credit. This is one of the reasons you don’t want to cancel credit cards unless you must. That means your Visa with a zero-dollar balance and a $10,000 credit limit is boosting your credit score; don’t close it!
- Ask For More Credit – While paying down your balances decreases the amount you owe, you can also improve your credit utilization by increasing how much credit you have. Although it sounds backwards, creditors prefer that you have more unused credit. The thinking is that people who have maxed out their credit cards are doing so because they can’t afford their expenses or are irresponsible with money. That makes them a poor credit risk. That means you can actually boost your credit score by increasing your available credit, and the fastest way to do that is to call your credit card company and see if they will raise your limit. If you have a good recent payment history, many credit card issuers will increase your credit limit with a simple ask. Much like paying down your credit, increasing your available credit boosts your credit score right away.
- Diversify Your Credit – Believe it or not, in some cases, getting new credit will actually increase your credit score in the long run. Part of your credit score takes into account the types of credit you have. Having a bunch of credit cards only counts as one kind of credit. Higher credit scores are reserved for those who have shown they can handle different forms of credit. Other types of credit include installment loans, such as loans for a car or boat, and of course, mortgages. A person with all three of those credit types on their credit report will have a higher score than if they only had one type of credit.
- Add More Good Credit to Your Credit Report – You know those weird commercials with a purple cow that say they can improve your credit right away? Believe it or not, it actually works for some people. The concept involves adding other forms of good payment history to your credit report. For example, if you have paid your water bill on time for years, that can be added to your credit report. You can also add things like cell phone payments, cable bills, and other utility bills. These bills not only add good payment history to your credit report, but they may also add extra history to your report if you have been paying for things like that longer than you have had other credit. However, this trick works best for people who have new credit or a thin credit report—that is, people without many credit accounts on their history.
For more tips on how to improve your credit, or to get help repairing your credit score, contact Key Credit Repair today!