Your credit score is a number in the range of 300 to 850 and is used as an indicator of your creditworthiness. But why is it so important? In short, it shows your ability to repay your debt.
A good credit score gives you access to many savings and benefits and a high credit score can make you eligible for the most rewarding credit cards and financing options.
You also get better terms and interest rates on a loan, pay lower premiums on your insurance, and a number of other benefits.
To help you make improvements on your credit and overall financial well-being, we’ve compiled a list of helpful ways to raise your credit score as well as useful tips to prevent it going down.
What impacts your credit score?
Banks, credit card companies, and auto dealers look at your credit score before they decide to give you a loan. The better your score, the more likely they are to approve you for a loan and with better terms.
These are factors could impact your credit score:
1. Your payment history
Timely payment of your bills affects your credit score more than anything else. Late payments, charge-offs, collections, foreclosures, and bankruptcies can harm your score.
2. The amount of debt you owe
Your total debt and the amount of debt you carry compared to your available credit limits will also impact your credit score. Too much debt or having high balances can also lower your credit score.
3. Your length of credit history
Your credit score also depends on the age of your oldest credit account and the average age of all your other accounts.
The older your “credit age,” the better it is for your credit score. A high credit age shows that you have a lot of experience handling credit.
4. Types of credit being used
Different types of credit that you use like credit cards, mortgages, loans, and store accounts also affect your credit score.
Having different types of credit on your credit report shows that you have experience handling various types of debt.
5. Number of credit inquiries
Every time you make a credit-based application, there is an inquiry on your credit report. If there are too many inquiries in a short span, it can hurt your credit score.
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Ways to Raise Your Credit Score
If you want to improve your credit score, there are some simple ways to do it. All you need is a bit of effort and some time.
Here are some simple ways to raise your credit score:
1. Review your credit reports
If you want to improve your credit score, you should first know what’s working for you and what’s not. You should start by first reviewing your credit reports to see what’s helping or hurting your score.
Errors on your credit report could also drag your credit score down. If you spot any inaccuracies, make sure that it is corrected and removed from your report.
Contrary to what many people believe, checking your own credit report does not affect your credit score.
2. Pay your bills on time
Your payment history makes a significant impact on your credit score. You should keep track of your monthly payments and set alerts to know when a bill is due.
Setting automated bill payments from your bank account is another way to avoid late payments.
3. Keep your credit utilization rate at less than 30%
The ratio of your outstanding credit balance to your credit card limit is called credit utilization. If you frequently purchase new credit cards, it’s going to raise your credit utilization rate.
That is because the higher your balance is, the higher your credit utilization rate. Ideally, you should try to keep it below 30%.
4. Avoid making too many new credit inquiries
Credit inquiries are classified into two types, hard and soft.
- Soft inquiries such as checking your credit or allowing an employer to do so does not affect your credit score.
- Hard inquiries such as applying for a mortgage, a new credit card, or an auto loan can lower your credit score, especially if they’re made frequently.
5. Do not close old accounts
The older your average credit age, the better it is for your credit score. Avoid closing old credit accounts even if you are not using them.
However, if you have delinquent accounts, collections, or charge-offs, take immediate measures to resolve them.
What can you do to prevent your credit score from going down?
Sometimes even small mistakes can have a profound effect on your credit score.
Here are a few things you can do to prevent your credit score from going down:
- Even if you pay your bills on time, having too many credit cards can be problematic. It increases your credit utilization rate and lowers your credit score.
- Not having any credit cards can also negatively impact your credit score just like having too many. Having a history of responsible credit use is better than not having any.
- Unpaid parking tickets and overdue library fines can also hurt your credit score. Avoid these fines or pay them on time to prevent them from going to collections and hurting your score.
- Be careful before you co-sign for friends or family on their cellphone plans, credit cards, or car loans. Such debt obligation can show up on your credit report and lower your credit score.
- Do not let any of your accounts go to collections. Pay them off on time to protect your credit score.
What is the Experian credit score boost?
You may have seen these advertisements and wondered how it works. Released in 2019, Experian Boost is a free service offered by credit bureau Experian.
It works by connecting to your bank account(s) to find qualifying on-time bill payments and, with your permission, adding those payments to your credit file.
These payments may include water, electricity, internet, cell phone, and even your Netflix subscription. The process takes about five minutes, and you’ll see any changes to your credit scores instantly.
If you are someone without very few accounts on your credit report, then proving your creditworthiness could be difficult. Adding these non-traditional payments could be an easy way to boost your credit score.
This article is for general educational purposes only and is not written by a financial advisor.
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