Do you ever wish you could get a better credit score but need help figuring out where to start? Ever feel overwhelmed at the thought of having to put in the effort and understand something as complex as credit scoring?
An excellent credit score is essential for obtaining loans from banks, being approved for rent, or buying a house. It is also important in achieving other related financial goals, such as getting lower interest rates on car loans or utility bills. To do so, it is crucial to understand how your credit score works and what measures can be taken to improve it.
If you are looking to boost your credit score, you need to know how your actions can either help or hurt your rating. Here is an overview of tips and tricks to quickly improve your score to increase your chances at loan approvals, rental applications, and more.
- Check Your Credit Report
The first step in improving your credit score is ensuring that all the information on your credit report is correct. Check for errors or discrepancies, as these can negatively impact your score. It’s also important to watch for any signs of fraud or identity theft, which can damage your score if left unchecked.
Checking your credit report helps you identify any issues, but an even more valuable feature is the credit score itself. Many credit-scoring companies now include your report in the formula they use to assign a credit score to you.
- Pay Your Bills on Time
Payment history is one of the most important factors in determining your credit score. Payment history accounts for 35% of a person’s FICO score, so making all payments on time is essential to keeping a healthy credit rating. Late payments can significantly lower your score, so stay on top of your payments.
Payment history is one of the three factors that determine your credit score. The other two are payment patterns and credit utilization. You’ll have to look at these three factors in conjunction with each other to see their impact on your credit score.
- Keep Credit Card Balances Low
Another factor that affects your credit score is how much of your available credit you are using. This is your credit utilization ratio and should stay below 30%. If you have a $1,000 limit on a credit card, you should keep the balance at or below $300 to maintain a healthy score.
Low credit balances can be achieved in two ways. You can either pay down your credit card balances or apply for another card with a larger credit limit. The latter should only be done if you can manage your available credit wisely and make timely payments.
- Don’t Open Too Many Accounts
Lenders see applying for too many lines of credit as a red flag and can lower your score. It’s best only to open what you need and close any unused accounts so they won’t impact your rating negatively. For instance, if you have three credit cards and only use two, it’s best to close the third card until you need it.
More open lines of credit can also indicate financial problems. If you are trying to build your credit and have a low amount of available credit, it’s best to close some accounts instead of applying for new ones.
- Pay off Debt
One of the best ways to improve your credit score is to pay off any outstanding debt. This will free up more of your available credit and reduce your overall debt-to-income ratio, which can help increase your score quickly.
The more positive information you have, the better your score. The most positive information is a history of making payments on time and not having any debt. For instance, if you have a credit card with a $1,000 limit and have never used it, you have no history of using the credit card. If you don’t use your available credit and make payments on time, lenders consider this the most positive information.
- Apply for New Credit Sparingly
The quickest way to hurt your credit score is to apply for new credit frequently. When you apply for a new line of credit, it’s noted on your credit report and stays there for about two years.
You don’t need to close the account after you open it, but keep in mind that doing so does indicate you want the lender to stop reporting activity on that account. Each time you apply for a new credit card, your score will be affected enough to lower.
- Diversify Your Accounts
Regarding your credit score, having various accounts is another factor used to determine your creditworthiness. Having diverse accounts is beneficial because it indicates that you are actively involved in managing different kinds of credit and have a history of paying bills on time.
To improve your diversity, focus on having some account with each type of creditor. For example, apply for another gas station and grocery store if you opened a credit card with a gas station and grocery store card. This will increase your diversity in a manageable amount of time.
- Consider a Debt Consolidation Plan
Credit consolidation is a quick and easy way to boost your score. It allows you to group all your debts into one monthly payment plan, reducing your overall monthly payment. Depending on the total amount borrowed, this can result in a much lower interest rate on your loans.
Credit cards and loans that are paid off first will have a higher score than those that aren’t paid off as fast. Credit consolidation will help improve your creditworthiness because it shows you can manage more debt.
- Set Up Automated Payments
Setting up automatic payments is one of the best ways to ensure you make all payments on time. These payments go through without any action, forcing you to keep track of all your bills. Automatic payments are particularly useful if they are made at the same time every month, so you can keep track of when they are due in addition to being paid automatically.
Though this tip is less about improving your credit rating and more about making sure you pay your bills, it can help determine if you are financially responsible. If you show that you can make all of your payments on time, it indicates that you are a responsible individual who can manage debt responsibly.
Following these tips and tricks can raise your credit score quickly. It’s important to remember that improving your credit score takes time and dedication, so it’s important to be patient and stay on top of all payments. With a little effort, you can have an excellent credit rating in no time!