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Your credit score is one of the most important benchmarks of your financial health. For bankers and lenders, it says a lot on how responsible you are as a payor. The better credit scores that you have, the easier it will be for you to be approved in case you need to apply for a loan or a new line of credit. Therefore, having credit scores with good standing can open a lot of opportunities for you including the lowest available interest rates when you need to borrow money.
An excellent credit score will save most people hundreds of thousands of dollars throughout their lifetime. Someone with good credit standing gets better rates on mortgages, car loans, and anything that concerns financing. Those with better credit scores are regarded as lower-risk borrowers, with more banks competing for their business and offering better rates, fees, and benefits.
Contrarily, those with poor credit scores are considered higher-risk borrowers, with fewer lenders vying for them and more businesses getting away with high annual percentage rates (APRs) because of it. Additionally, having a poor credit rating affects your ability to find rental housing, rent a car, and even get life insurance because your credit scores affect your insurance score.
Here’s a general step-by-step guide to improving your credit scores.
Improving your credit helps to know what might be working in your favor or against you. That’s where reviewing your credit history comes in. Ask for a copy of your credit report from each of the three major national credit bureaus: Equifax, Experian, and TransUnion. Then, study each report to see what’s helping or damaging your score.
Factors contributing to a higher credit score include a history of on-time payments, low balances on credit cards, a combination of different credit card and loan accounts, older credit accounts, and minimal inquiries for new credit accounts. Major credit score detractors are due to late or missed payments, high credit card balances, collections, and judgments.
Your payment history is one of the most critical factors determining your credit scores. Having a history of on-time payments can make you reliable, helping you attain excellent credit scores. To do this, you’ll need to ensure you don’t miss loan or credit card payments by more than 29 days, as payments that are at least 30 days late can be reported to the credit issuers and affect your credit scores.
The best way to never miss payments is by setting up automatic payments for the minimum amount due. It can also help you avoid paying late fees. If you’re having problems affording a bill or paying on time, reach out to your credit card issuer immediately to try and discuss options.
Monitoring your credit is an easy way to see your credit score performance. It monitors changes in your credit report, such as a paid-off balance or a new account that you’ve recently opened. Many credit monitoring services are available online such as IdentityForce, Credit Sesame, Complete ID, ID Watchdog, Privacy Guard, and more.
Credit monitoring services can also help you prevent identity theft and fraud. For instance, if you get an alert that a new credit card account that you don’t remember opening was reported to your credit file, you can immediately contact your credit card issuer to report suspected fraud.
Even if you’re not behind on your credit card bills, having a high balance on your accounts can result in a high credit utilization rate and affect your credit score. Revolving accounts comprise credit cards and other lines of credit, and keeping a low balance on them can help improve your scores.
It’s necessary to open accounts to build your credit file, but you wouldn’t want to overdo it. So, it’s crucial to limit how often you submit credit applications. Each new application leads to a hard inquiry, which may harm your scores a little, but queries can add up and affect your overall credit score.
Improving your credit score is an excellent goal to have, especially if you’re planning to apply for loans to make a significant purchase, such as a new auto or house. Trying to improve your score may take weeks and sometimes several months to see an apparent impact on your credit score when you start taking the above mentioned steps to improve it. But the sooner you start working towards improving your credit score, the sooner you will see significant results
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