Your credit score is going to pay a very powerful role in the health of your financial life. Whether you’re paying for a loan, seeking employment or renting an apartment, having a healthy credit score is going to open doors for you.
A low credit score on the other hand is going to lead to higher interest rates, loss of opportunities as well as denied applications. The good news? Improving your credit score is very much possible.You just need to have a strategy that involves consistency.
Understand What Affects Your Score
Before you can even begin to improve your credit scores you must understand the things that affect it in the first place. The most widely used scoring model is FICO and it considers the following five components
Payment History
Paying your bills on time is a very important factor. Even one missed payment is going to negatively impact your credit score altogether. As much as possible you should try to make the minimum payments on time.
Credit Utilization
Your credit utilization is the ratio between your credit card balances and your credit limits keeping this ratio under 30% is always ideal.
Length of Credit History
The longer the credit history you have the more your score would be boosted. You should keep your older accounts open unless you have a very good reason to close them.
Credit Mix
Having a good mix of credit types such as credit cards, student loans and auto loans is going to improve your score tremendously.
New Credit
Having way too many new accounts or hard inquiries in a short amount of time is going to lower your credit score temporarily if you are not careful.
Understanding all of these as elements is going to help you to tailor your actions so you can get the biggest impact possible. For example, if you have a very low score and you have too high of a credit card balance it’s a good idea to focus on paying down those debts.
This will have a bigger impact than just opening a new account. Sometimes errors on your credit report will also affect your score in a negative way.
One very serious error some people encounter is annotation messages that they are no longer among the living. You might ask yourself, what does consumer deceased mean on a credit report?
This label typically happens when a creditor mistakenly reports your status to different credit bureaus.
One of the biggest effects that it has is an immediate denial of credit, blocked financial assets are also possible. In more severe cases your accounts may be frozen. If you spot this notation it’s important that you dispute the error with all the major bureaus as soon as you can.
Practical Strategies to Increase Your Score
Once you start to understand the mechanics of any of your credit scores you can start making moves that will improve it. Take a look at some proven strategies to do so.
Make Payments on Time Every Time
When you have late or missed payments you can see an impact on your credit report for as long as 7 years. You should enable autopay, set reminders or use a budgeting app so that you stay on top of the due dates for your payment.
If you’ve missed payment in the past you should try to focus on creating a streak of consistent as well as on time payments going forward. This is the best way to redeem your credit score.
Reduce Your Credit Utilization
If you’re using too much of the credit that is available to you it is a signal to your lenders that you present a risk. You should try to pay down your existing balances even if it’s just a little bit each month.
If at all possible you should request a credit limit increase. But only if you’re confident that you will not be tempted to spend it at any given time.
Don’t Close Your Old Accounts
Your credit history is going to benefit from all those older accounts that you have. You need to no longer use a card if you need open can help to maintain the age of your credit. It will also maintain the age of your available credit limit as well. All of this will help with your score.
Limit New Credit Applications
With every credit application that you do it is going to result in a hard inquiry. And this is going to temporarily reduce your credit score. There is no way around it. You should avoid opening multiple accounts at once and only apply for new credit once it becomes extremely necessary.
Use Tools Like Authorized User Status or Credit Builder Loans
If you’re new to credit or you are simply trying to rebuild a bad credit history you should consider being added as an authorized user on a responsible person’s credit card.
You should never use the card but the positive payment history that they have will be respected and bode well for your report. Credit building loans are also another tool that you can use. They’re offered by credit unions and some online lenders. This will help you to repair your credit with time.
Take Charge of Your Credit Future
Improving your credit scores isn’t something that is going to happen overnight; you just have to keep that at the forefront of your thoughts.
However, it is within your reach. If you are consistent, develop smart habits such as paying your bills on time and using your credit wisely, you can improve your credit score. Remember that it is more than just a number, it is a reflection of your financial habits to date.
It is also the key to future opportunities. Whether you want to qualify for a mortgage, refinance a current car loan or you just want to be in control of your financial life, you need to take steps to raise your score whenever possible to do just that.