Maintain your Credit Score
While building a credit score is not a quick process, it can hold you back from getting approved for loans, credit cards, or interest rates. Your three-digit credit score usually ranging from 300 to 800 can easily reflect your financial capabilities. With 800 being the highest, the higher the score the less risk you are to lenders.
It tells lenders how responsible you are in making payments on time if they grant you a loan or a credit card. It is a critical financial factor that can determine your eligibility and the sooner you address the issues that are lowering your score the faster you can improve.
Understanding your Credit Score
One of the best steps to improve is to understand precisely how your credit score is calculated. No no has just one score either, it is compiled of a few different scores. First, pinpoint precisely where you need to improve.
You can get free credit reports from Experian, Equifax, and TransUnion. AnnualCreditReport.com
Always closely review your credit report. According to CNBC, “About 25% of Americans have an error on their credit reports, so it’s important to take the time to review.” For example, look out for misreported payments, fraudulent, or duplicated accounts.
Pay Off Debt on Time
According to Wells Fargo, your payment history accounts for 35% of your score.
This includes past due dates on your bills, payments that are on time, and how often you miss making your payments. These accounts may include credit cards, retail department store accounts, installment loans, auto loans, student loans, finance company accounts, home equity loans, and mortgage loans.
Making payments on time can substantially increase your score, however, if there is no history for lenders to review it may damage your credit. The calculations consider how long your oldest accounts are and lenders love to see a history of payments being paid on time.
It is crucial to always make your payments on time and off debt. Lenders determine your credibility as an indicator of future performance. If your payments are past due, they can slowly be increased if you bring those payments to current again.
Use 30% of your Available Credit
Any accounts you owe for loans and credit cards make up 30% of your score, according to myFICO.com.
Lenders consider the proportion of money owed compared to how much you have in available credit. For example, higher balances and maxed out credit cards lower your score.
If you’re using up a majority of your available credit, it may appear to the lender that you are a high risk of defaulting.
However, if you’re spending 30% of your available credit or using them once a year, this can actually help your score by showing you have some restraint. Lenders want to see a long record of credit management.
Build a Credit History
Your credit relies on the number of credit lines you have open and the length of time they’re open. Your score will consider a mix of credit cards, accounts, and loans. Opening several accounts in a short time decreases your score. New loans may also temporarily decrease your score but once you begin making those payments it will slowly begin to decrease.
It is wise to limit your use of credit cards, but once they’re paid off don’t close them as it may decrease your score. Use your credit card as a financial tool and begin to manage how often you use them. If you think it may run up the balance, don’t get a credit card. It is important to choose a credit card with a low-interest rate with no monthly fees. Only sign up for a credit card if it benefits you and saves you the most each year.
Get Credit for Utility and Phone Payments
If you’re already making payments each month for utility and cell phone payments, there are products available to improve your credit by factoring in those payments. Not every bill gets counted onto your credit only because landlords or other providers don’t usually report them.
Experian is a free service that identifies and confirms your utility payments to add them to your credit score report.
ExtraCredit also allows you to link rent and utility payments as a credit line to be reported to the credit bureaus.
Learning to maintain a credit score to reach that 800 number never happens right away. It takes a lot of time and patience to get back your score and to continue to keep it high.
The more you learn about your credit report, the more control you have over your own credit. It is difficult to understand how changes can affect your score but identifying elements that have the greatest impact on your score can help to prevent it from falling.
A good credit score is key to financial success as it leads to many opportunities. It is critical to ensure that your score is in good standing.
Sources:
https://www.experian.com/blogs/ask-experian/credit-education/improving-credit/improve-credit-score/
https://www.nerdwallet.com/article/finance/raise-credit-score-fast
https://www.wellsfargo.com/financial-education/credit-management/calculate-credit-score/
https://www.investopedia.com/how-to-improve-your-credit-score-4590097