Having a good credit score is important if you want to build a solid financial future. The nation’s three credit bureuas collect personal-finance data from numerous sources and weigh them using a formula to arrive at a number. This numberrepresents your credit score, which comes on a scale of 300 to 850. Is there a way to boost your credit score? Well yes and we’ll break down the different ways to make that happen.
Any score above 750 tells the business world you’re an excellent risk and you can borrow money at the most favorable interest rates.
A low credit score oftentimes makes it harder for you to take out a personal loan, buy a car or mortgage. And even if you’re able to qualify, you’ll have to pay higher interest rates.
If you want to improve your score, the process can take time, but it’s possible. You can however work to improve your credit score by addressing the issues that are harming your score and by developing good credit habits going forward.
Factors That Affects Your Credit Score
Your credit score shows whether or not you have a history of financial stability and responsible credit management. Here are the elements that affect your score and how much weight each aspect carries.
1. Payment History
Your payment history determines 35% of your credit score. Creditors look at whether you have made past credit payments on time. If due to late payments you have collections, repossession, tax liens, or foreclosure, these can devastate your credit score, making it almost impossible to get approved for anything that requires good credit. Missing payments can really affect your credit score quickly, so make it a priority to pay your bills on time each month. A simple way to ensure timely payments is to set up due-date reminders and/or auto-pay.
2. Amounts Owed
At least 30% of your credit score is made up of what you owe, which is also called your credit utilization ratio. This refers to the amount of credit you use compared to your total credit limit per account as well as across all your credit accounts. The higher your credit utilization, the less likely issuers are to approve you for new credit accounts or credit limit increases. That’s why you prioritize keeping your revolving balances low or near zero.
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3. Length of Credit History
The “length of credit history” means how long any given account has been reported open, How long you’ve had credit makes up 15% of your credit score. Avoid closing old credit card accounts whenever possible, since it will decrease your average length of credit history.
RELATED: How Old Do You Need to Be to Start Building Credit?
4. Credit Inquiries
The number of new credit accounts you apply for impacts 10% of your credit score. Whenever you apply for a new credit card, a hard inquiry appears on your credit report when the lender checks your credit file. This lowers your credit score by a few points every time it occurs and stays on your credit report for two years.
If lenders see too many hard inquiries on your credit report in a short period of time, it may signal to them that you are a high-risk consumer and may deny your application.
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5. Types of Credit on Your Report
This covers the final 10% of your credit score. There are two basic types of credit accounts exist, revolving accounts and installment loans. Having both types of accounts on your credit report is better for your credit score because it indicates you have experience managing various types of credit. It’s even better if you have loans for different types of assets, such as a car or a home, in addition to credit cards, and maybe a student or personal loan.
Ways to Boost Your Credit Score by 100 Points
Check Your Credit Report
Request a free credit report from each of the three credit reporting agencies (Equifax, Experian, and TransUnion) at least once a year at annualcreditreport.com. Look for errors that lower your credit score and take action to correct them.
Pay Your Bills on Time
Set up automatic payments or sign up for e-mail alerts from your credit card company to avoid missing the due dates
Pay off any Collections
Paying off a collection will increase your score. That record of a debt having gone into the collection will stay on your credit report for seven years.
RELATED: How to Fix Your Credit After a Negative Mark
Get Caught up on Past-Due Bills
Make sure you pay down the balance before increasing your debt load. FICO says paying down your overall debt is one of the most effective ways to boost your score.
Don’t Close Paid-off Accounts
Think twice before closing older credit card accounts, because doing so can lower your total available credit, leading to a higher utilization rate.
Shop for New Credit Over a Short Time Period
Too many inquiries can negatively impact your score. If you cluster these applications within a few days or a week. The FICO scoring system will recognize that you are comparing rates for a new loan or credit card rather than attempting to open multiple new lines of credit.
Summary
When you’re working to fix your credit, it takes good behavior over time. Knowing what actions to take can help improve your credit score. Being a responsible borrower can boost your chances of increasing your credit score by 100 points or even more. Most of the tips listed For improving your score can be completed today with immediate effects.
