8 ways to improve your credit score
Keeping a good credit score is central to your financial life. A poor credit score can severely impact your ability to get a loan, credit card, and even rental applications. A good score can save you thousands of dollars on interest payments and help you achieve your financial goals. Here are some ways to improve your credit score.
Understand the calculation of credit scores
Your payment history, credit utilization ratio, length of credit history, types of credit used, and new credit inquiries are factors in calculating your credit score. Take the time to understand how these factors affect your credit score. It can help you make better decisions about how to manage your credit.
Pay your bills on time
Paying your bills late can severely impact your credit score. Therefore, it is vital to pay your bills on time. Set up automatic payments or reminders that will help you stay on track. Your payment history is a prime factor in determining your credit score.
Reduce your credit utilization ratio
A credit utilization ratio is the amount of credit you use compared to your credit limit. For example, if you have a credit card with a $10,000 limit and a balance of $5,000, your credit utilization ratio is 50%. A higher credit utilization ratio indicates that you rely too heavily on credit. It can negatively impact your credit score. Your ideal credit utilization ratio should be below 30%.
Pay off debt
Having higher levels of debt can be hard to improve your credit score. Paying off your debt soon can help to improve your credit utilization ratio, thus showing lenders that you are responsible with credit. Create a debt payoff plan and stick to it. It will help to reduce your debt levels.
Keep old credit accounts open
The length of your credit history is another important factor in determining your credit score. Closing old credit accounts can shorten your credit history and negatively impact your score. Keep old credit accounts open, even if you are not using them.
Avoid opening too many new credit accounts
Opening new credit accounts can be bad for your credit score, especially if you open too many accounts simultaneously. Every time you apply for credit, it creates a hard inquiry on your credit report, thus lowering your score. Only open new accounts if and when necessary.
Monitor your credit report
It is essential to monitor your credit report. It will help you catch errors or any fraudulent activity which impacts your credit score. You are entitled to a free credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once a year. Review this report for accuracy and dispute any errors you may find.
Consider a secured credit card
If you have a low credit score or no credit history, a secured credit card can help you build credit. Secured credit cards require a security deposit, which acts as collateral for the credit card. Use this card responsibly and pay your bills on time to help build credit.
