5 ways to improve your credit score
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Thinking about buying a house? Leasing a car? Taking on a business or personal loan? If you’ve done any one of these things, then you’ve had to go through the standard credit check. A credit report is an overview of your debt payment history, current debt balance, length of credit history, and your credit mix, all wrapped up with a final score between 300 and 850. Naturally, the better you handle your debt, the higher your credit score and vice versa. Maintaining a high credit score is important as it will increase your chances to qualify for financing and even gain more favorable terms. Below I’ve outlined 5 easy ways to improve your credit score and increase your changes at more favorable terms.
Sometimes life happens and you miss a credit card payment or you’ve lost your job and you’re behind on medical bills. Unfortunately, if this goes on long enough, the result is a decrease in your credit score which as we mentioned above, can negatively impact your ability to secure a loan, a home, or any other asset that involves financing.
But worry not; your credit score is not a static number and you can improve it. Please note, this is not an overnight process and does involve some patience.
1. Check your credit score online
Your credit report will show you the factors that are affecting your credit score. Certain factors are more important than others so it’s important to understand where to prioritize your efforts. Becoming familiar with your starting point should always be your first step. To check your score, you can visit Credit Karma for a free credit report.
2. Pay Your Bills on Time
If you’ve gotten behind on your bills due to lost employment or unforeseen circumstances, this one will be tough. However, it’s important that you find a way to adequately manage this in order to boost your credit. Refinancing or debt consolidation are both options available to help lower monthly payments to make debt repayment more manageable. Be cautioned that activating any one of these options will likely cause a temporary dip in your credit score. However, if you continue to make the monthly payments on time, your credit score should come back up over time. Before making any changes to your monthly payments, consult with your lender and/or debt attorney. For tips on how to better budget your expenses, check out our post on creating a budget: 5 Easy Steps to Create a Budget You’ll Actually Stick To
3. Maintain Your Credit Utilization Ratio below 30%
The credit utilization ratio is calculated by adding all your credit card balances and dividing that by your total credit limit. For example, if over the course of a year, on average, your total credit card balance is $3,000 and your spending limit is $40,000, your credit utilization ratio is 7.5%. Lenders typically like to see ratios less than 30%. A low ratio shows that you haven’t maxed out your cards and can manage your spending.
4. Don’t open a new account if you don’t need it
Tempting as it may be to get an additional 15% at your favorite retailer if you open a credit card with them today…DON’T. Do not open more credit cards unless you need to. Unused cards can create harm via a hard injury to your credit score, and will also tempt you to shop for things you don’t need.
5. Don’t close unused accounts
On the flip side, if you have an unused card, don’t close the account. Closing the account will impact your credit utilization ratio as it lowers your overall spending limit and increases your credit utilization ratio.
Maintaining a good credit score will ultimately help you in the long run by presenting yourself as a formidable candidate for a loan or any other financing. Should you be in the unfortunate position of having a low credit score, you can turn it around but will it take time as certain indiscretions like unpaid bills and bankruptcies will stay on your credit report for several years. Use these tips to improve your credit score and become a more formidable candidate for financing..
