Most people know that their credit score impacts how likely they are to be approved for a loan or credit card and the interest rate they will be offered. However, they may not realize that credit scores` can affect their chances of getting a job, whether they’ll be approved for insurance, their ability to obtain a cell phone or satellite TV service, and much more. The good news is, that there are ways people with poor credit can improve their credit score. Below are 6 Tips To Improve Your Credit Score.
6 Tips To Improve Your Credit Score
Whether you are looking to buy a new car or just want to be approved for a loan so you can pay off some bills, the 6 tips to improve your credit score you see below, can help you get started with the process.
1. Review Your Credit Reports
Your credit score is based on information about your financial history collected by Equifax, Experian, and TransUnion, which are the three major credit bureaus. There are two reasons to check your credit report. The first is to get an idea of which items are helping your credit score and which are hurting it.
The second is to check for any errors or signs of identity theft that could be negatively impacting your score. On-time payments, low balances on revolving credit accounts, older accounts, and minimal inquiries help your score.
High credit card balances, late or missed payments, judgments, collections, too many inquiries, repossessions, and other negative items can hurt your score. If you spot any errors on your report, you can request the credit bureau remove or correct the erroneous information.
2. Pay Your Bills on Time
Payment history accounts for 35% of your FICO credit score. One of the best ways you can improve your credit score is to make sure you make all of your payments on time. Consider creating a filing system, either on paper on online, to keep track of your bills and their due dates.
Use a productivity app, calendar app, or other function on your computer or smartphone to alert you when a bill is coming due. You may also be able to request e-mail or text notifications from your creditors. Set up automatic payments with creditors that offer that service. You can also simplify the payment process by charging all of your bills to a single credit card and then paying off the balance every month.
3. Keep Your Credit Utilization Under 30%
Credit usage constitutes 30% of your FICO score. Your credit utilization is calculated by dividing the amount of credit you have used by the total credit limits you have available. You should aim for a ratio of under 30%, which means that if you have $10,000 available credit, you should use no more than $3,000 of it at a time.
The best way to accomplish this is to pay your credit card balances in full every month. Another way to improve your ratio is to request a credit limit increase and then do not use the extra available credit. People with the best credit scores will usually have a credit utilization of less than 10%.
4. Limit the Number of New Accounts You Apply For
Whenever you apply for a new credit card, loan, or another type of credit, it places a hard inquiry on your report. Occasional inquires will not have a huge negative impact on your score, but if you apply for a lot of credit at the same time, lenders may view this as a red flag that you are having financial difficulties. While you are trying to improve your credit score, it is best to avoid applying for new credit.
5. Do Not Close Old Accounts
The age of your credit accounts makes up 15% of your credit score. The older your accounts are, the better your score will be. Closing unused accounts can negatively impact both your credit utilization and the average age of your accounts.
If any of your accounts have been charged-off or are in collection, try to work with the lender to get caught up on missed payments and make future payments on time.
6. Monitor Your Progress
There are a variety of services available that will provide you with a free credit check. Take advantage of these to keep an eye on how your score is changing.
Poor credit can result in higher interest fees and missed opportunities. However, these six methods can help you improve your credit score and your overall financial health.