5 Expert Tips on How to Improve Your Credit Score
Having a good credit score is crucial for financial stability and success. Your credit score is a numerical representation of your creditworthiness, and it plays a significant role in determining whether you can get approved for loans, credit cards, or mortgages. A higher credit score not only increases your chances of getting approved but also enables you to secure better interest rates and terms. If improving your credit score is part of your New Year’s resolutions, just follow these expert tips.
5 Ways to Improve Your Credit Score
To improve your credit score, it’s essential to understand the factors that influence it. Payment history has the most significant impact, accounting for about 35% of your score. Other contributing factors include:
- Amount of debt owed (30%)
- Length of your credit history (15%)
- Types of credit (10%)
- New credit inquiries (10%)
Although the following tips may help boost your credit score, the total point gain and time it takes will vary based on your current credit score. For those on the lower end (600 or below), it may be possible to gain up to 100 points using these suggestions.
1. Pay Off Debts & Reduce Credit Utilization
One of the quickest ways to increase your credit score is by paying off your outstanding debts. Start by focusing on high-interest debts and those with the smallest balances. As you pay off these debts, your credit utilization ratio will decrease, which is the amount of credit you’re using compared to your total available credit. Aim to keep your credit utilization below 30% to see a positive impact on your credit score.
2. Build a Positive Payment History
Late payments can derail any positive work you are doing to boost your credit score. Even one missed payment can have a significant negative impact. That’s because they remain on your credit record for seven (7) years. A good way to ensure that you always pay on time is to set up automatic payments with your creditors. Over time, if you continue to make timely payments, the negative impact of your late payments will eventually diminish.
3. Ask For a Credit Limit Increase
Another way to reduce your credit utilization ratio is to request a credit line increase. This will instantly lower your overall ratio. Of course, you’ll need to make sure that you don’t access the additional credit line. If you do, you’re simply adding more debt, which will negatively impact your score.
4. Become an Authorized User
If requesting a credit line increase isn’t an option, you can also lower your credit utilization ratio by becoming an authorized user on someone else’s account. Be sure that the account holder has a good credit history and a high credit limit. The outstanding balance, however, should be low. The best part is that you don’t even have to have access to the account. By simply being an authorized user, you’ll benefit from your friend or relative’s good credit habits.
5. Fix Credit Report Errors
It’s important to review your credit reports regularly to ensure they are accurate. If you find errors, such as accounts you did not open or missed payments that you made on time, file a dispute with the credit bureau ASAP. The process can take up to 45 days, but once the errors are removed, your score should rebound quickly.
Improving your credit score takes time and effort, but it’s worth it to achieve financial stability and open doors to better opportunities. By implementing these expert tips, such as paying off debts, disputing errors, and building a positive payment history, you can quickly see improvements in your creditworthiness. Remember, a good credit score is within your reach, and with the right strategies and discipline, you can achieve it.