A good credit score is a lifesaver in times of critical financial needs. Paying your loans on time and owning an account for a long time are just a few things that can help you build a good credit history and improve credit score.
With the hardships of life, it reaches a point when you have no option other than securing a loan. Before giving you the loan, lenders will look at your credit score’s payment history and credit utilization ratio. Therefore, it will help if you take action now to improve your credit score. A bad credit score will only burden you with additional payments charged as a penalty of missed payments. If you are reading this article, it means that your credit score is compromised, and you have taken the first step to improve it.
What is a credit score?
The credit score is a common term you will hear people talking about, especially regarding loans. It is a summary showing your credit history in numbers. Lenders usually use the credit score to determine your capacity to pay back the loan they make to you in full. The score ranges from 300 to 850, or poor to excellent, respectively. Making payments on time, having a low credit use, and extended credit history builds a good credit history and scores you higher. However, missed payments, late payments, and other things can make you have a bad credit score. A score higher than 720 tags you as an ideal customer before lenders. Achieving lower than 630 makes lenders see you as a problematic borrower.
You can view your credit score from the major credit bureaus, which offer free credit reports, or through free platforms like Credit Sesame. One of them is the FICO credit score. Many lenders use this credit monitoring service provider to contain your entire credit history, credit report, credit inquiries. They use it to determine your credit limit. FICO score has five components it relies on to create a credit score:
● Length of credit history (scored 15%) – holding an account for a long time improves your credit report.
● Payment history (scored 35%) – is your credit paid on time? Is the balance paid fully?
● Amounts owed (scored 30%) – what is your credit limit? Take caution not to exceed the credit allowed above 30%, as this will negatively impact your credit score.
● Credit mix (scored 10%) – a blend of auto loans, credit cards, and mortgages attracts the score of FICO.
● New credit (scored 10%) – while opening a new account is suitable for your credit score. However, it can lower it if you apply for multiple accounts within a short period.
Adjusting through the storms of this hard life may readjust your credit score. For example, timely payments of installment loans and credit cards improve the score. In addition, putting the credit card in use frequently by applying for a student loan or getting a mortgage makes you handle more debts and positively reflect your credit score.
Steps you can take to improve your credit history
Now that you know what a credit score is and how it can affect your financial health, the remaining thing is knowing how to improve it. While the FICO score provides an entire credit history, there is more credit card you can go to for your score. Capital One and Chase give a similar score known as the Vantage score. These credit cards get their information from TransUnion, Experian, and Equifax, the major credit reporting bureaus. While they are trusted credit reporting agencies, there can be slight differences between credit and vantage scores. Here are the steps you need to take to improve your credit score:
1. Register into a credit boost service.
Besides getting installment loans and having credit cards, you can increase your score by Experian Boost or any other credit boost service provider. It collects and reports the payments you make for bills monthly to the major credit bureaus. And by linking your bank account to Experian, boost your score increases.
2. Have multiple credit accounts.
It is healthy to borrow money only when necessary. However, having multiple credit accounts shows that you are responsible for managing credit perfectly. Having a car loan or a home mortgage can earn your accounts a good reputation, and repaying these loans on time remains in the record for up to 10 years. A mortgage company in Muskegon MI can help you understand your options and guide you through the lending process to ensure that you make informed decisions and secure a loan that suits your financial situation. By consulting with a mortgage company, you can ensure that you are making a responsible decision and that you will be able to repay the loan on time, further strengthening your credit score.
3. Lower your credit utilization ratio.
This is an important factor used in determining your credit score, and it takes up to 30% of your credit score. It measures the amount of credit you owe against the total amount of credit you can access. To remain on the safest side and maintain a higher credit score, exceeding your credit card limit beyond 30% is advisable.
4. Increase your credit limit.
It is quick and straightforward. Just request it. Depending on your credit card service provider, the process may differ, but it won’t take long. You can even do it online, as many credit cards allow for online services. You can significantly lower your utilization ratio by increasing your credit limit. When requesting a limit increase, be sure not to do it on a new credit card as many service providers won’t approve of it. Also, avoid attracting hard inquiries on the credit report. You can ask for a credit limit increase in 6 months.
5. Attend to errors in your credit report.
Assuming simple report errors made by the bank may reduce your credit score. Request for your credit and review it keenly. Every year you have one entitlement to a free credit report, so take that advantage. If you notice an error, dispute it. Once the error has been fixed, a positive message will be sent to credit reporting agencies, and your score will increase.
6. Repay on time.
Timely payments attract positive reports and build a good credit history. Don’t miss a due payment date. Out of the total credit score, your payment history weighs 35%. Even if you can’t pay the full due payment, pay what you can.
7. Handle credit cards with balances.
Clear your credit card balances starting from the one with the highest balance. This can earn your debt-to-income ratio a more score which lenders use to determine your trustworthiness.
Getting a personal, car, and other loans is only accessible if your credit score is flawless. Many lenders will look at many things before lending you money, but your credit score stands tall. You can improve it by requesting a credit limit increase, getting a credit boost service, or reducing your credit utilization ratio.
Rose Rosie is a writer for the personal finance website, Joy Wallet, which provides readers with useful information, resources, and tools to help maximize their financial fitness.