Are you wondering how to Improve your Credit Score Or perhaps, you are searching for the best way to increase your score? If you check the internet today these are the most frequently asked questions. Are you also worrying about how to improve your credit score?
Well, you are on the right page and section. This article is everything you need to know about how you can easily improve your credit score. Follow this article to the very end to know the easiest and fastest way to do that.
What is a Credit Score?
A credit score plays an essential role when you want to apply for a loan or a credit card. It is a three-digit number that shows your creditworthiness to financial institutions and banks. It tells lenders how good and responsible you make use of your credit.
How Does It Work?
The higher your credit score the easier doors will open to the lowest interest rate available when you borrow loans. If you would like to improve your credit score there are different simple ways and things you can do.
Although it might take some time to see improvement in your score, it is better to start working towards it now. However, it can be a little hard to know where to begin. Whether you want to build your credit from the very beginning or you want to rebuild after your scores have taken hits.
It is very important to know how your scores are calculated and the best ways you can improve them. Then, you can now go into details based on your situation.
How are Credit Scores Calculated?
Credit scores are mainly calculated using the details found in your credit reports. Many believe that they have only one credit score.
However, you need to know that in reality, credit scores can vary depending on the scoring model that is used to calculate them.
Also, credit scores can vary based on the nationwide reporting agency (TransUnion, Equifax, or Experian) that provides the data. This is because not all financial institutions and lenders report to all three agencies.
Some report to two or only one or even none. Thanks to all these factors, you have different credit scores or credit reports. Although the score model is different and varies, they usually consider the below;
Your Payment History
Another way to raise your credit score is through your payment history and how you pay your bills on time is one of the biggest factors in calculating your credit score.
This is because it is such an important component. Missed or late payments can have a big impact on your score.
Credit mix refers to your different types of accounts, including student loans, credit cards, and even mortgages.
A solid payment history along with maintaining variety can show lenders that you know the fundamentals of credit.
Amount You Owe
The amount of money you owe at a given period of time is the sum of your balances across lines of credit.
It is advisable to pay off all the balances every month. Doing so will help you show the lenders that you can make payments on time.
This occurs when a creditor or lender checks your credit after you apply for a new credit line. Frequent hard inquiries can impact your credit score negatively. And may also suggest to lenders that you are trying to take more credit than you can repay
Now that you know how credit scores are calculated, let’s move to the next section of the article. This contains how you can easily improve your credit score.
How to Improve Your Credit Score
Just like I have mentioned above, it is very important to improve your credit score. Without much ado, below are the best and easiest ways to improve your credit score. You can use these steps and guidelines to increase your credit score to 800 and above.
Pay on Time
One of the first things to do to improve your credit score is to pay your debt on time. Even before the given time, if possible.
Payment history makes a good impact on your credit score. So it is very important to avoid paying late.
Improve Your Credit Score by Checking your Credit Report
Another important thing to improve your credit score is to check your credit report. Doing this will help you identify and check errors in your report. If by any chance you find mistakes or errors in your report, you must get them rectified immediately.
As the credit score is normally calculated based on the information in the credit report, it is essential to ensure that the report is free of mistakes.
Make sure you keep your credit utilization rate low
I personally think it is best to keep your credit utilization rate below 30%. Apart from reducing your spending, you can lower your rate by asking your credit card company for an increase in your credit card limit.
Improve your Credit Score by Keeping your old Accounts open
When you are trying to improve your score, do not lose any of the old accounts that you have paid off. Even if you are not making use of them anymore. Leaving the account open will help you maintain the length of your credit history.
Reduce or limit applying for new accounts.
Applying for new accounts or new lines of credit will lead to a hard inquiry, which can affect your credit score negatively. So, if you want to improve your score, make sure you limit how often you apply for new accounts.
Also, opening a new line of credit can decrease the length or average age of credit history. This is another factor used in calculating your credit score.