Throughout your life, your ability to manage various types of credit will be documented on your credit report — and that activity forms your credit score. If lenders see something less than savory in your borrowing history, they may view you as a borrower who’ll either miss or make late payments, which can result in being denied or getting approved with unfavorable rates and terms.
Our guide teaches you about what information goes into a credit score and most importantly, how to improve it to make you an ideal credit candidate.
WATCH: How to build a PERFECT credit score
16 strategies to improve your credit score
Improving your credit score can be a slow process, but it could help you get a better finance deal down the road with more flexible options and better borrowing terms.
- Order a copy of your credit report. First thing’s first, request a free credit report from the major bureaus to make sure that lenders see only the most accurate picture of your financial health. If you discover any errors, file a dispute with the three credit bureaus and the provider that reported them.
- Pay your bills on time. Paying your bills on time is exactly what lenders want to see on your credit report. If you can successfully continue to make on-time payments, not only will you avoid late fees and black marks — but your credit report will also reflect that you can successfully manage your finances.
- Keep credit card balance low. To indicate to lenders that you’re a responsible borrower, only carry a balance with a credit utilization ratio of 30% or less. For example, if your credit limit is $1,000, keep your balance below $300 — which is 30% of your limit.
- Avoid too many hard credit inquiries. Every time you apply for a credit card or loan, it’s listed on your credit report as a hard inquiry and pulls down your score. By waiting and limiting which cards you apply for, you can take advantage of products that make sense for your financial situation.
- Don’t close old credit accounts. Having only new accounts will result in a lower score because the length of you credit history will be nonexistent — so don’t close out old accounts. Lenders want to see a long history of healthy credit management in your report.
- Avoid negative listings. By fully paying back your debts, you can avoid the long-term effects of payment default — which can linger on your credit report for up to seven years. More severe marks include court judgments, which can also be listed for up to seven years, and bankruptcies, which potential lenders can see for up to a decade.
- Correct late payments. Let’s say you have one delinquency with a credit provider, they may remove that black mark from your credit report if your account was in good standing and you have a legit excuse as to why you missed that payment.
- Try to remove accounts in collection. Sometimes a collection agency is willing to remove collections account off your credit report if you pay the debt in full. While some agencies will refuse, it doesn’t hurt to try.
- Maintain an active credit account. Lenders want to see a proven track record of responsible borrowing and repayment behavior. This means you need to have credit accounts and keep them in good standing.
- Build a credit history. If you’ve got no credit history, you’ll need to start building your credit. You can start small by opening a mobile phone plan or an Internet account in your name. Gas and other utility accounts also factor in, as do store credit cards.
- Create a budget. Knowing how much money is going in and out is the most effective way of finding out what you can afford to spend each month without landing yourself in debt.
- Forward your mail after a move. Set up mail forwarding with USPS and provide your new address to banks, utility companies, phone companies and other lenders so that your bills are redirected to the new address.
- Credit builder account. You can establish credit or improve your credit score with a credit building loan. Instead of getting access to funds upfront, this type of loan requires you to make monthly payments until the loan is paid in full, at which point you have access to the money.
- Consolidate your debt. Debt consolidation using a loan can streamline your payments and help you save on fees.
- Use a credit monitoring service. Some credit reporting bureaus offer monitoring services that’ll notify you any time there’s a change in your credit score and information in your report. These services could be helpful in staying on top of your overall financial well-being.
- Hire a credit repair specialist. Credit repair professionals have the knowledge and will work with you to rid your credit report of any errors and make disputes on your behalf to get your credit score where it needs to be. Only consider this option if you feel you won’t be able to manage your debts by yourself.
Must read: Can I Improve my credit score by 100 points?
If you have poor or fair credit, it’ll be much easier for you to boost your score by 100 points — compared to someone with a score of 700 — because you have more room to improve. As your score gets higher, upward credit mobility gets harder.
Three ways for someone with lackluster credit to increase their score by 100 points would be:
- Stay focused on payments. See to it that all accounts are paid to date and that you keep paying on time and in full each month. Once you catch up on payments you’ve fallen behind on, set up an autopay so you never let a payment slip through the cracks again.
- Monitor your credit report. Scan each of your credit reports at least once a year, challenge information that looks erroneous and make sure that if an account should have fallen off your credit report with time that it actually has.
- Don’t abuse your credit limit. Keep your credit utilization ratio less than 30%. To keep your ratio low, you can ask for a credit limit increase, make payments twice a month or even move some debt with balance transfer credit card.
What are the factors that impact my score?
Even though credit scores are calculated differently depending on the reporting agency, these are the major factors that can determine your overall credit score:
- Your payment history. Whether you’ve paid past and current credit accounts on time and in full.
- Your credit utilization ratio. Experts advise carrying a balance with a utilization of 30% or less. For example, if your credit limit is $1,000, keep your balance below $300, which is 30% of your limit.
- The age of your credit history. A credit report with credit accounts open for a long time can improve your score.
- Types of credit. You want to show that you can successfully manage a healthy mix of revolving credit and installment credit.
- The number of listed credit inquiries. Too many applications for credit could signal that you’re under finical pressure and lower your score.
- Liens and other judgments. Negative behavior in the past is an indicator of increased risk and could decrease your credit score.
Why is your credit score important?
Your credit score is a numerical representation of your credit report.
It’s important because financial institutions use both your credit score and the information in your credit report to make decisions about whether you’re a reliable borrower.
When you know what your credit score is, you have a better idea of what types of credit to apply for and your chances of approval.
Check your credit score to know where you stand
How long will I have to wait for my credit score to improve?
It’s going to take some time, especially if you have legit derogatory marks in your credit history. For now, you should continue to focus on maintaining healthy credit habits and wait until the black marks reach their expiration age on your credit report.
In addition to making payments on time and not getting yourself into heaps of debt, you really just have to keep your head up, practice the aforementioned credit habits and be patient when waiting for your credit score to improve.
Frequently asked questions
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