Improve My Credit: This is How You can Improve your Credit
We all need credit to help us finance debt. Managing that debt well will result in a good credit report and credit score. There are a host of credit scores available but the one most people rely on is their FICO score. Lenders, especially for auto and home loan financing, will typically check your FICO scores so improving your credit is extremely important.
Check your credit report – Equifax, Experian, and Transunion are the three credit bureaus, which publish your credit reports. You can access your free credit report at AnnualCreditReport.com. The reports between the big three will differ, but what is essential is that you check your report for errors. Two ways you can fix the errors are with the credit-reporting agency itself or at the source, the creditor who supplied the information to the bureau. The percentage of people who have been successful at disputing credit scores is as high as 79%.
Timely payments – Payment history accounts for 35% of a FICO credit score. Pay your bills before the due date and ensure you pay more than just the bare minimum. On any debt, interest is compounded which means the longer you take to pay off your outstanding debts, the more you shell out. Lenders judge their financing risk by looking at an individual’s payment history because the best predictor of future behavior is past behavior.
Make Utility payments on time – Experian Boost is a program, which allows you to factor in your utility payments to better your score. This is beneficial if you have been paying these bills on time. It also extends to mobile phone payments. Visit https://www.experian.com/consumer-products/credit-score.html to register.
Manage your revolving credit well – Credit utilization ratio or credit utilization rate is the amount of revolving credit you have divided by your total credit limit. It is the second largest contributing factor to your FICO score, making up 35% of it. A good credit utilization ratio is anything less than 30%, which means using less than 30% of your available credit. Example - on a credit card limit of $2,000 your outstanding balance should be less than $600. A good ratio is indicative of healthy borrowing.
Open new credit only when required – Applying for new credit that you do not need could lead to careless spending which in turn results in poorly managed credit. New credit has a 10% bearing on your credit score. Too many recent loans will affect your score adversely. Financing these individuals is riskier for lenders as well.
Don’t close unused credit cards – Having less available credit limit at your disposable might increase your credit utilization rate. Your outstanding balance is divided by your total credit limit. The less that limit is, the higher the debt to available credit ratio. Closing your unused credit cards is a good strategy especially if you are not paying unnecessary annual fees.
Pay off debt that has gone to collection agents – Before you consolidate your debt or get a balance transfer, calculate how much debt you can pay off. All late payments, penalties, and fines adversely affect your credit score. Just transferring the debt, does not improve your score. The more you pay off, the more your score improves. Plus by paying less interest, you save yourself money in the long run.
At the end of the day, the best way to improve your credit score is to manage your credit well. Make those monthly payments on time and never take more credit than you need. Practicing a healthy credit diet will keep your debt in check and help you secure future financing as well.