Are you planning to apply for a loan or mortgage and want to get the best rate? Or you’d want to get approved for the best rewards credit card? Whichever the case, you may want to know how to improve your credit score.
It is based on various factors, including the length of credit history, payment history, and amount owed. Your credit score tells whether you’re a high or low-risk borrower. To get better interest rates and terms from your lender, you need to have a high credit score.
If you’re having problems improving it, there are ways to improve it quickly. Regardless of what’s holding it down, it’s possible to gain as much as 100 points in no time.
What’s A Credit Score?
It refers to the numeric summary of your credit history. Lenders use your credit score to determine whether you can repay a loan or not. A credit score with 300 points is considered poor, while the one with 800 points is considered excellent. Higher scores demonstrate a good credit history, including on-time payments, long credit history, and low credit use. Low scores indicate late payments and overextended credit use. Still, you can get bad credit cash loans if you can prove your ability to pay.
There are no designated scores for a bad or good score, but there are specifications for each. Most lenders consider scores over 720 as perfect and scores below 630 as problematic. Below are steps to improve your bad credit score:
- Ensure That Your Credit Reports Are Accurate
Experian, Equifax, and TransUnion are the leading credit reporting agencies that collect credit information from companies with your open accounts. Credit reporting agencies collect your credit information from banks, retailers, mortgage and auto lenders, credit card companies, and utility companies. However, any errors in the credit information can affect your credit score. These mistakes can range from misspelled names to simple clerical errors, and they can sometimes be costly.
To improve your credit score, make sure that your credit reports are correct. You have the right to get a free credit report from any credit reporting agency once a year. Request your report and make sure that it’s accurate. If everything isn’t as it should be, file a dispute with the agency and the company linked with the incorrect information.
2. Don’t Miss Payments
Your payment history is crucial in determining your credit score, while a history of on-time payments increases your chances of achieving an excellent credit score. To improve it, you need to ensure you don’t miss credit payments by more than 29 days. Credit repayments late by 30 days can affect it since they could be reported to the credit bureaus.
3. Understand Your Risk Factors
The free credit report you requested from the credit reporting agencies only shows the actual report, not your credit score. However, if you want to improve your credit score, ensure that you purchase a full credit report that includes it.
TransUnion, Experian, and Equifax provide a full credit report with a list of your risk factors. Your full credit score can have up to 300 risk factors that may help you understand where improvements are needed. Risk factors indicate what’s lowering it, which can include multiple credit card applications in a short period.
Not having a mortgage can also be considered a risk factor. However, you don’t need to buy a house to increase your credit score—you might spot other risk factors that may need to be addressed.
4. Manage Your Credit Utilization
Other than your payment history, the amount of debt you have is also significant to it. Since credit reporting agencies aren’t aware of your income information, they use an element called ‘credit utilization’ rather than the debt-to-income ratio. Utilization constitutes 30% of a FICO credit score.
It’s recommended you use less than 30% of your credit utilization. However, individuals with high credit scores have less than a 10% utilization rate.
Ensure your balance is low before the card is reported to the credit bureaus since it will determine your score. The best way to do that is to pay several times within a month to keep your balance low.
5. Apply For Credit Only When You Need It
Each time you apply for a loan, a hard inquiry is made on your credit. These inquiries affect your score negatively. For instance, applying for a credit to see whether you can get approved lowers your score temporarily.
A single hard inquiry may drop your score slightly. However, several hard inquiries may indicate that you’re taking too much debt. According to TransUnion, a hard credit pull or inquiry can affect your score for about 12 months.
If you have to apply for credit, research your likelihood for approval before applying. To be on the safe side, get a pre-approval since it results in a soft instead of hard credit pull. A soft pull wouldn’t lower your score.
6. Get A Credit Card If You Don’t Have One
Irresponsible use of credit cards can affect credit scores negatively. However, if used wisely, a credit card can be influential in improving it.
Signing up for a credit card and paying your credit on time creates a positive payment history. Additionally, when you spend low on your card, you create a low credit utilization.
If you’re worried about spending more with your credit card, opt for a card with no annual fee and use it for one or two recurring expenses. Get a credit card and place a small recurring amount on it. Set it to auto-pay and shelve it. By doing this, you won’t be overwhelmed by payments. Instead, you’ll be building your credit history quickly.
7. Be Patient
While working on your risk factors and paying credit on time can positively impact your credit score, improving your credit score requires patience. This process can last months. Credit reporting agencies require consistent and responsible trends before changing your scores. Therefore, monitor your credit reports and pay your credit on time to improve your credit card score.
It may sound counter-intuitive, but a credit card with a low score is likely to gain more scores than a credit card with a high score. With the right approach to improving your score, you’d only need small changes to gain more scores. Ensure that you pay your credit on time, manage your utilization, apply for a loan only when needed, and wait for a hike on your credit score.