Feel confused about the credit system? You’re not alone. Not only is the majority of the population left bewildered on how to improve credit scores, but they’re unsure how the score was even calculated in the first place.
However, improving your score does need planning and a few behavioral changes, especially over the long term. There isn’t a quick fix. Nothing (short of winning the lotto) will instantly fix your credit score issues if you’re drowning in debt.
The secret is setting attainable, realistic professional goals that, after a few months, will help your credit score significantly improve. We’re going to discuss some straightforward, crucial tactics for approaching these long-term objectives so that you may take immediate action.
But first, it pays to be aware of all the elements credit bureaus take into account when determining your credit score in order to comprehend the reasoning behind our straightforward top tips to improve credit scores.
As more and more of us feel little control over our credit rating, this poses the question: can we even improve it at all? Considering that your credit score is vital to your financial security, it’s vital to fuel it with the health kick it needs. Continue reading to learn how you can get started:
Why Is a High Credit Score Important?
Most people will save hundreds of thousands of dollars over the course of their lives with a strong or exceptional credit score. A person with excellent credit is eligible for lower interest rates on mortgages, car loans, and other forms of finance. Having improved credit scores are associated with lower risk borrowers, and more institutions will compete for their business by providing better rates, fees, and benefits. On the other hand, those with bad credit are seen as higher-risk borrowers, which results in fewer lenders competing for their business and more companies getting away with criminally high annual percentage rates (APRs). A low credit score might also make it difficult for you to receive life insurance, rent a car, or find rental accommodation since it impacts your capacity to borrow money.
Make multiple micro-payments
Making frequent payments throughout the month will drastically improve your rating without pushing your balances too high. Asides from payment history, a crucial factor to consider is keeping your credit utilization low – also known as the amount of credit you use in comparison to the level you have access to. If you’re able to make small payments and pay them off right away, your score should start creeping up quicker than you know it.
There is no way to avoid this because it is the most crucial element. You must pay your credit card payments on time each month if you want to improve credit scores. Keep in mind that your credit score is 35 percent based on your payment history. Therefore, you must prioritize paying your expenses. Make every effort to adhere to a regular payment schedule so that you may send in your payments on time each month. Lenders will have more confidence in your ability to appropriately manage future debt if you make your payments on schedule. In order to pay all of your bills on time each month and preserve a solid credit protection and history, use an automatic payment system or set calendar reminders.
Get added as an authorized user
Credit companies judge you on a wide range of factors – even your friends. If you’ve got a thin file, a quick way to improve credit is to ask to become an authorized user of a family or friends account with a good record. The best part? You don’t even need to use the card yourself. Simply being trusted by someone with healthy financial history won’t just improve your image, but it also lowers your utilization and subsequently grows your file.
Request higher limits
Higher limits automatically lower your utilization without increasing your balance. Remember to ask your issuer if they need to do a ‘hard inquiry’ in order to make the change as hard inquiries will usually drop your score by a couple of points. Higher limits also give you more breathing space when you need to borrow more than anticipated, and it also means you won’t need to open another line of credit elsewhere.
Getting a bigger limit might not be the ideal choice for someone who struggles with impulsive spending and lifestyle inflation, but it might improve your credit utilization. Keep in mind that this is credit that you are NOT using. More unused credit will result from a higher limit. You might find it simpler to accomplish the desired credit usage ratio of 30 percent or less as a result.
For instance, if you only have one credit card with a $1,000 limit and typically owe $500 on it, your credit usage is 50%, which is not good to improve credit scores. Your utilization rate would rise to 25% if you increase your limit to $2,000 while keeping your balance at $500.
The shotgun approach
Consider taking out a line of credit that you don’t have, for example, you may have been using a credit card for years but have never taken out a loan. By taking out a loan, you’re improving your ‘credit mix’ by showing that you can handle debt in different forms. Revolving credit such as monthly credit card payments should always be mixed with installment accounts – such as paying off a car.
Check for errors
Never trust the credit companies blindly, they make mistakes all the time and it can pull your score down substantially. Even if you’ve been keeping track of your accounts and payments, they might have marked something down as late or unpaid, and you need to check for this militantly. Equifax, Experian and TransUnion allow you to check your credit every week, and blemishes on your record can easily be disputed if they are incorrect.
It’s in your best advantage to make sure all the information in the report is true if someone is going to keep a credit report on you. To ensure there are no inaccuracies hurting your score, use internet resources to check your credit report for free. Do not be concerned; this type of credit check will not lower your rating.
Take it slow and steady
While applying for credit products, especially credit cards, is typically relatively simple, you shouldn’t submit more applications than are really essential. Lenders who want to verify your credit record may make several hard queries about you in a short period of time as a result of your multiple credit applications. Try to be selective when selecting credit products that are the most advantageous to your personal finances because that will have a negative impact on your credit score.
There are many ways to improve credit scores fast and we suggest you look into them all but first and foremost, don’t panic. You will be surprised how quickly your score will grow, even if it’s sluggish, to begin with, it will build up momentum if you’re diligent.
Be wary of companies that promise to instantly repair your credit, if it sounds too good to be true, it probably is. No matter what your needs are, good credit is a vital part of financial stability and growth.
Simply put, we suggest being patient. While it can take a few months to spot a noticeable difference, if you follow the aforementioned steps, you’ll be on track towards the healthy score that you desire and deserve.
