Today, credit scores are everything. Whenever it comes to a credit decision, your score is the primary factor for financial institutions or lenders. For some, it's the only thing that they look at. This means that your score should be as high as possible. A high score will give you the best rates and financing opportunities. How a credit score is calculated may be a trade secret for credit agencies (in fact there are over 12 different credit scores), but analysis has brought to light some of the factors that influence it. Here are 5 quick ways that you can improve your credit score.
Make Payments on Time
One of the easiest things you can do to raise the credit score is to make all your payments on time. If you have any loans or bills, don't wait to pay them or it will hurt you. A history of making on-time payments shows that you are worthy of credit and is a great way to improve your score. Some people have trouble making payments on time because you forget about them. If that's the case, set reminders on your calendar or phone to let you know when a bill is coming up.
Utilize your Credit Strategically
Opening a line of revolving or installment credit can be a good way to boost your score. However, credit card companies offer you high credit lines, but hurt you if you use too much of it. Having a higher limit can help you utilize more credit if you need to, so strategically opening credit lines can be a good way to improve credit and use it. Keeping a low balance on your credit cards also helps you avoid high credit card interest rates. Also remember that every time you open a credit line, it will trigger a hard credit pull that will lower your score. Make sure you save these inquiries for when you really need to use it.
Track Your Credit Score
A good way to improve your score is to track it using a third party service or the major credit bureaus. Once a year, you can request a credit report (not score) from the major bureaus for free. You can also sign up for a third party service, like Credit Karma, that tracks your credit score and updates it over time. Most major banks now offer the option to track your credit score as well. These services also offer tips on how you can improve your score. Tracking your credit score and knowing what factors are affecting it can help you discover how to get a better score.
Avoid Major Delinquencies at All Costs
As the title states, avoid major delinquencies at all costs. These actions are major events that can have a large effect on your credit score. Delinquencies can include foreclosures, repossessions, loan defaults, judgments, bankruptcies, and other major adverse credit actions. These major events can cause a large drop in your score and can take a long time to recover from. Bankruptcies will stay on your credit report for 7 years until it goes away. This is a long period to have a low credit score and will hurt you anytime you need credit.
Only Use Credit When you Can Afford it
Credit, contrary to some people's beliefs, is not free money and you should only spend what you can afford to spend. Credit can be a great tool when used correctly, but devastating when misused. People who use more credit than they can afford have trouble repaying and hurt their scores. Making sure that you only use credit when you can afford to make the payments will improve your credit score and make you look more credit worthy.
You improved your credit score, now what?
Now that you have a high credit score, you have to keep it that way. Continue to make payments on time and only spend what you can afford to spend. With a higher credit score, you can now obtain better rates on loans and credit cards. Banks will see your financial health and be more willing to extend to you personal and even business credit if you decide to become an entrepreneur. It is important to have a high credit score for the more important credit score, such as a mortgage. With a mortgage, you could be stuck with a poor rate for 30 years if your credit score is not superb. Even if you improve your credit score during your mortgage, it still costs more to refinance due to fees.
If you have student loans and you're trying to avoid debt altogether, you can look at Defynance who is working on a student loan refinancing product that is based on income share agreements. This debt-free solution to financing has payments based on a small percent of your income. This means that if you lose your job or have a low salary, then you do not have to make payments. It removes debt from the financing equation.
