Many of us are aware of our credit scores and how important they are, but not all of us consider the things that could affect or make changes to improve them. Unless we are at the stage of an application for lending, then it might be too late. Our credit scores can be the difference between an acceptance for a lending product or a decline, or in some cases, a more expensive rate of interest. So what can you do to improve it? Here are some tips that can help improve your credit score.
- 9 Tips To Improve Your Credit Score
- 1. Check your credit report for inaccuracies
- 2. Pay your bills on time
- 3. Keep your credit card balances low
- 4. Use a mix of different types of credit
- 5. Keep old accounts open
- 6. Limit your applications for new credit
- 7. Use credit counseling if you have trouble managing debt
- 8. Give yourself time
- 9. Focus on debt
9 Tips To Improve Your Credit Score
Your credit score is one of the most important pieces of financial data that you have. A good credit score can help you get loans and credit cards with better interest rates, and it can also help you save money on insurance premiums. A bad credit score, on the other hand, can cost you thousands of dollars in interest payments over the course of your lifetime.
There are a number of things you can do to improve your credit score. Here are some tips:
1. Check your credit report for inaccuracies
The first step to improving your credit score is to make sure that all the information on your credit report is accurate. You can get a free copy of your credit report from each of the three major credit bureaus (Experian, TransUnion, and Equifax) once per year.
Check your credit score for free at Credit Karma. It’s 100% free with no credit card required.
Make sure that your correct details are registered there, including your current address and the details of accounts you have. If you have an ex-partner such as a wife or husband you have divorced, and you are no longer financially associated with them, you can ask them to be removed as they may negatively impact your score if they have a bad credit history.
The same goes for if you see records that do not belong to you. If you spot these, then there may have been an incident of identity theft. So you might need to investigate this further.
If you find any errors on your credit report, you can dispute them with the credit bureau. If the bureau finds that the information is inaccurate, they will remove it from your report.
2. Pay your bills on time
One of the most important things you can do to improve your credit score is to pay your bills on time. This includes everything from your monthly mortgage or rent payment to your credit card bill and utility bills.
If you have trouble remembering to pay your bills on time, you can set up automatic payments with your bank or credit card company. This way, your payments will be made automatically on the day they’re due.
3. Keep your credit card balances low
Another important factor in your credit score is the amount of debt you have relative to your credit limits (this is called your “credit utilization ratio”).
Ideally, you should keep your credit utilization ratio below 30%. This means that if you have a $1,000 credit limit, you shouldn’t owe more than $300.
One way to lower your credit utilization ratio is to pay down your credit card balances. Another way is to request a higher credit limit from your card issuer.
4. Use a mix of different types of credit
Your credit score is also affected by the types of credit you have. It’s generally good to have a mix of both revolving credits (like credit cards) and installment credit (like auto loans).
Having a mix of different types of credit shows lenders that you’re a responsible borrower who can handle different types of debt.
5. Keep old accounts open
The length of your credit history is also a factor in your credit score. So, even if you don’t use an old credit card anymore, it’s usually best to keep the account open.
6. Limit your applications for new credit
Every time you apply for a new line of credit, it results in a “hard inquiry” on your credit report. Too many hard inquiries can hurt your credit score.
Therefore, it’s generally best to limit your applications for new credit to only when you absolutely need it.
7. Use credit counseling if you have trouble managing debt
If you’re having trouble keeping up with your payments or managing your debt, there are plenty of credit counseling and debt management services that can help. Just make sure you choose a reputable one. If your debt is overwhelming, consider debt consolidation before filing for bankruptcy. Although Chapter 7 Bankruptcy would discharge the debt reported on your credit report, it will lower your credit score tremendously.
8. Give yourself time
If you know that you will need to apply for a mortgage or a remortgage, or even any other lending product, then start thinking about your credit score sooner rather than later. Remember that the more time you have to correct it or improve it, the better chance your application has. It might take up to three months before things are recorded there, so giving it as much time as possible, for example, six months will help you make the most out of the changes you will implement.
9. Focus on debt
Debts are often the big problem when it comes to credit scoring. They do work in your favor in one respect as they show that you can pay things back, not miss payments, and show history. But, if you do miss a payment or the percentage of debt versus your available credit is relatively high, this can negatively impact your credit score. If you can, from the point you want to make changes avoid ever missing a payment. The next thing would be to reduce your debts as much as possible. If you can, try and pay more off than the minimum. Look at the debt that is costing you the most money, and pay more off it each month. The more you can increase the amount of available credit you have, the better position you will be in with your credit score.
Improving your credit score can take some time and effort, but it’s worth it if you want to save money on interest payments over the course of your lifetime. By following the tips listed above, you can help improve your credit score and get on the path to financial success.