Your credit score determines whether or not lenders will finance your projects. It is a crucial part of your financial life. The higher the credit score, the more you qualify for loans and credit cards. You also get more favorable terms that allow you to save money on your loan.
Your credit score is especially crucial when you’re in the market for a house. You can only secure a mortgage if your income, expenditures, and the way you manage your finances add up to a fixed credit score the bank has set.
If your credit score is not where you want it to be, there are ways to get you back on track to financial stability. Here’s how:
Review the reports
You can’t do anything until you know the numbers. Luckily, once each year, you can get your score for free from each of the three major credit bureaus – Equifax, Experian, and TransUnion. All you have to do is ask for it. Each bureau has a different method for calculating your credit score so don’t be alarmed if the numbers are slightly different from one agency to the next. Once you have determined your score, it will be much easier to implement the other tips in this article.
Pay your bills on time
When lenders look at your credit score, they look at how you pay your bills. Do you pay them on time when they’re due? Lenders assume that past payment performance is a great indicator of future performance. Therefore, paying your bills promptly will influence your credit score. This means paying all of your monthly bills – from utility companies to credit cards to student loans.
Keep balances on credit cards low
Another feature that goes into the credit score calculations is the credit utilization ratio. Lenders look at the total amount of credit you’re using and divide that by the total amount of credit available to you. The remainder gives them an indication of how much credit you’ve used. For example, if you have $2,000 in available credit and you’ve spent $1,200, then your credit utilization is 60%. Lenders prefer the number to be 30% or less. Scale down your expenditures to the ideal level to improve your credit score faster.
Do not have multiple credit cards
If you have far too many credit cards, lenders will view this as a red flag – even if you don’t use them. Owning multiple credit cards will make it seem like you are trying too hard to accumulate debt or overspend. This will not improve your credit score. So, make sure that you close unused credit cards.
Remove the negative comments on your credit report
If you’ve made one or two late payments in the past, these instances may pop up as a negative comment on your credit report. If you are serious about cleaning up your credit history, you can do something about it. You can ask to remove the comment and maybe even change it up for a better one. Contact the lender and make your case – explain what happened and why your payments were late. If you’ve been a good customer with a clean payment history, they may listen.
Make a conscious effort to ensure that your debts are paid on time and you will be rewarded with a higher credit score. Don’t give up even if your score is the lowest it can go. It may take months to correct, but if you keep working at it, your credit score will eventually improve.
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