In these uncertain times, building and maintaining good credit is more important than ever, and there are simple, proven approaches to doing this.
Credit scores are essential for obtaining a mortgage or loan, but they can also have a significant impact on everything financial – from cell phone contract prices to car insurance to general employability.
How to increase your credit score
Your credit score is intended to indicate whether you are a high or low risk applicant.
FICO and VantageScores (compiled by the three leading credit bureaus Experian, TransUnion and Equifax) range from 300 to 850 points.
A 700 point score is considered “Excellent,” and lenders offer you better loan terms and fees when your credit index is higher.
Here are ways you can increase your credit score:
1. Pay your bills on time
experiential shows that loan repayment history is the most important factor in the VantageScore and FICO scores. From the lender’s perspective, a track record of making payments on time is a solid signal that a borrower will properly manage future obligations.
According to John Ulzheimer (credit expert), if you want to improve your credit score, you need to avoid mistakes like foreclosure, third-party collections, late payments and defaults. He also says that declaring bankruptcy is a wrong decision as it could indicate a failure to fulfill a responsibility.
2. Make sure your credit utilization rate is low
Compare your balance to the credit limit to make sure you’re not overusing your credit card, which could put you at risk.
Ulzheimer suggested aiming for a 10% usage rate, explaining that the higher this ratio, the lower the score you get in this category. He also noted that the highest average FICO ratings had a 7% utilization rate.
Additionally, your utilization rate may be affected by the date your credit card company reports to the credit bureaus.
Your score is based on your usage rate when your lender reports. According to Ulzheimer, FICO’s scoring methods make no distinction between people who pay their credit card balance in full each month and people who have a balance. On the other hand, VantageScore takes into account whether you pay in full or carry a balance from month to month.
3. Keep old accounts open
Most people are tempted to delete loan records after deleting them, especially the student loan. But if you made the repayments on time, these records can greatly improve your credit score.
According to the Bistrita Balkans, vice president of communications at Equifax, borrowers should not close the account in hopes that it will improve their creditworthiness while paying off their debts in full and on time is a good thing. She added that an account with a good payment history can encourage lenders to lend you on better terms.
Closing a credit card account hurts your credit score by reducing your maximum credit limit. It is best to keep the card with a zero balance. If you still have balance on other cards or credits, your usage level will increase.
4. Take advantage of score boosting programs
The number of accounts and their average age play an important role in your credit score, putting those with limited credit backgrounds at a disadvantage.
ultraFICO and Experian programs enable borrowers to improve their credit profile by providing them with financial advice.
You can link your banking information to these programs so that the credit bureau can include your online and bill payment information in your credit report. When UltraFICO calculates your rating, you can give permission for your financial information, such as checking and savings accounts, to be reviewed along with your credit report.
5. Only apply for the credit you need
It’s not a good idea to apply for more than is necessary, regardless of whether you’ve been approved or received a pre-qualified loan offer.
Credit matching services such as Viva payday loanconnects you to reputable lenders online, avoiding lenders who only charge you with hidden fees and making sure you pay off your loans on time.
You may find it difficult to repay the amount on time. On the other hand, a string of tough requests for lenders may indicate that you are over-leveraging. According to a TransUnion spokesman, the impact of hard borrowing on your score can last up to 12 months.
Don’t panic if your bad credit is holding you back. You can start improving your credit score now and be on your way to a brighter financial future.
A strong credit score has a significant impact. You can get cheaper interest rates on everything from student loans and personal loans to mortgages and credit cards if you have better credit.