Giving Your Credit Score a Boost

A person’s credit score is a critical measure of his or her financial health. This score is a number in the range of 300–850 which depicts a person’s creditworthiness. The higher the credit score, the better his profile appears to financial lenders. 

Your credit score is based on your credit history which indicates how many open accounts you have, the amount of debt, and your repayment history. Your credit score is one of the first reference points that lenders look at to evaluate your likelihood to make timely repayments.

A high credit score may also qualify you for lower interest rates against your loans. If you wish to improve (and maintain) your credit score, there are steps you can follow.

Review Your Credit Reports

For you to have insight into the factors that are affecting your credit score, you may download a copy of your credit report from the 3 major credit bureaus: TransUnion, Experian, and Equifax. You can do this without charge once annually through the AnnualCreditReport.com official website. Here, you can review the elements affecting your credit score.

On the other hand, a credit history that’s marked with missed or late payments, high balances on credit cards, collection agencies, and judgments are detrimental to credit scores.

Be Responsible with Bill Payments

Your payment history bears the biggest effect on your credit score. If your payment history indicates that you’ve paid your debts such as credit card bills and student or other loans in consistent timeliness, you are likely to have a high credit score.

Be strategic about how you pay your bills to avoid delays:

  • Create a filing system so you can keep track of your monthly payment responsibilities
  • Set alerts for various bills’ due dates
  • Set automated payments (say from a bank account to billers’ accounts), if available
  • Set multiple bills to auto-charge to one credit card. This way, you only need to worry about paying one credit card bill instead of multiple bills

Keep Credit Utilization at 30{c08da6746524858c1afed82ddd821083f45da5a576526cd25f0b0f7601fef75b} or Less

Second to payment history, the next critical factor affecting your credit score is credit utilization. This is the percentage of your total credit limit that you’re using up at any one time.

The easiest way to manage your credit utilization is to pay off your monthly credit card balances in full or at least keep your outstanding balance below 30{c08da6746524858c1afed82ddd821083f45da5a576526cd25f0b0f7601fef75b} of your credit limit. Credit utilization at consistently 10{c08da6746524858c1afed82ddd821083f45da5a576526cd25f0b0f7601fef75b} or less is considered ideal for improving credit scores.

Another way to manage your credit utilization ratio is to request an increase in your credit limit. An increase in credit limit will, inversely, decrease the percentage of your utilization. That is, of course, if you don’t increase your spending, as well.

Avoid Applying for New Credit and Other Hard Inquiries

Inquiries into your credit history can be categorized into “hard” and “soft” inquiries. Soft inquiries do not have an impact on your credit score. A soft inquiry is your own checks on your credit or checks initiated by a company, typically for screening or pre-approvals.

Hard inquiries, on the other hand, adversely affect your credit score. This includes applying for a new credit card, a mortgage, bank loans, or any form of credit. Doing this occasionally is harmless, but several hard inquiries within a short span of time negatively impact your credit score. Therefore, avoid submitting applications for loans indiscriminately.

Let’s say you want to buy a house — apply for a home mortgage loan only when you are in a confident position that you will be following through with the purchase. Indiscriminate or careless loan application submissions may be construed as a lack of financial instability, thus lending banks may deem you as a risk.

Maintain Old Accounts and Address Delinquencies

The longer you maintain one healthy credit line, the better your payment history looks to lenders. If you have old credit lines that you are not utilizing, do not close the accounts. If you close down older credit card accounts while you have balances on other credit cards, this lowers your credit limit, thus causing your credit utilization ratio to go up.

Resolve any delinquent accounts. Work out a payment plan with the credit companies, if possible. The important thing is you are updated in your payments.  

Your credit score is computed using a formula with several factors that credit companies don’t really publish. Improve your credit score by focusing on two known factors: payment history and debt balances. Keep a good payment history with no missed or delayed payments. Keep your credit lines open, even old ones, but do keep credit utilization at 30{c08da6746524858c1afed82ddd821083f45da5a576526cd25f0b0f7601fef75b}.

A history of timely payments, low credit card balances, a diverse mix of loan accounts and credit cards in good standing, and nominal inquiries for new loans or credit are all factors that contribute to a high credit score.

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