10 Ways to a Better Credit Score

1. 10 Ways to a Better Credit Score

2. Introduction Overlooking the importance of the credit score is one of the biggest financial management mistakes one can make. The credit score is basically the mirror of your financial responsibility, which is why banks and other lenders check the score of potential customers prior to lending them money. This three-digit number tells lenders how likely you are to repay a loan in a responsible and timely manner. A bad score, of course, is not going to get you approved for loans very often or, in case it does, it may cost you hundreds or thousands of dollars in premiums, which you wouldn’t have to pay if you had a good credit score. It is in your best interest to keep this score as high as possible, which will take some work and responsibility on your part. It’s not that difficult to get a high credit score or even to fix a bad one, but once you do get the score you are satisfied with, it is important to know how to keep it that way. Very bad Bad Fair Good 700 Excellent 310 650 750 300 560

3. 3 The credit score largely depends on your credit history as one of the most important factors that show your financial responsibility. The credit history is information based on which lenders decide what loans you qualify for and what interest rates you will be paying. Every action you take with your credit is going to be presented in your credit history. Some of those actions can affect your credit history and score negatively, which is why you need to put some effort into controlling your finance-related activities to ensure a good credit score. Sometimes, of course, things that are out of your control can affect your credit score negatively, but you shouldn’t worry about that too much. Even though you cannot control all situations, there are many ways you can bring your score back up. In a nutshell, the better your credit score is, the more likely you are going to be approved for the loans you are interested in. A high credit score brings along other benefits, such as better interest rates and discounts on premiums. However, don’t stress about your credit score being perfect, as it doesn’t have to be. In fact, it’s nearly impossible to have a perfect credit score all the time. Just make sure you are doing your best to pay your bills and loans in a timely manner. Here are ten things you should know if you want to keep your credit score high! Very bad Bad Fair Good 700 Excellent 330 650 750 300 560

4. #1 Checking Your Credit Report Checking your credit report is the first step toward improving your credit score. People often confuse credit reports with credit scores, so we are going to get that out of the way by explaining the difference between the two. A credit report is a detailed report of your credit information including a history of your payment activities, balances, bankruptcies, delinquent payments, etc. Whereas, a credit score is a three-digit number based on the credit report which tells your average score when it comes to timely payments, debts and other credit activities. It is important to check your credit report every once in a while for two reasons. Firstly, the report will tell you how well you are doing in managing your finances. This is important information for you because you have to track all your credit activities in order to maintain a good score if you’re planning to get Very bad Bad Fair Good 700 Excellent 350 650 750 300 560

5. 5 a loan. Even if you haven’t thought about getting a loan any time soon, you will still want to keep your score high enough for future situations. Secondly, make sure to check your credit report for errors, as it can sometimes happen that there is an error in the data. For example, there could be incorrect information on the report that lowers your credit score, such as incorrectly listed late payments or incorrect owed amounts on different accounts. As they can negatively impact your credit score, make sure to dispute all errors that you find, which can be done in the credit bureau. Remember, the sooner you dispute all errors, the better it is for your score. Requesting your credit report directly from the credit reporting agency will not affect your score, so you can do it as many times as you want to. Make sure that you check it often, especially after some major credit activities. To get a Credit Report and check your Credit Score you can visit TransUnion by clicking here. Very bad Bad Fair Good 700 Excellent 370 650 750 300 560

6. #2 Understanding the Credit History Your credit history is one of the most important factors the potential lenders will be looking at when deciding whether or not you’re a good candidate. The credit history lists all your credit activities, whether good or bad. Therefore, you must aim to pay your bills and loans on time in order to have a good credit history. Being late when it comes to payments has a very negative effect on your credit history and the impression you are giving to lenders. If they see that you have often been late with your payments in the past, lenders are going to assume you won’t be able to pay out their loan in a timely manner either and, thus, won’t proceed to approve you. If you are late to make one or two payments, that’s not a big deal, but if you are constantly being late, that is definitely a red flag for any potential lender who will be reviewing your credit Very bad 390 Bad Fair Good 700 Excellent 650 750 300 560

7. 7 history. If you are currently late for any payments, try to pay those off as soon as possible. Of course, everyone makes mistakes or isn’t able to pay certain payments on time, which is okay if it doesn’t happen too often. You don’t have to stress too much over a few late payments as their effect on your credit history will decrease over time. Older payments are less relevant than the recent ones, so if you focus on correcting your mistakes, the ones that you made in the past will become obsolete. Another thing you should do is leave the debts you paid off in a timely manner instead of getting them off your report. These debts are also called the “good debts” because they show you are able to pay off loans in a timely manner, just like you agreed to do. Leaving the good debts on your credit history is going to improve your score and make you a more appealing candidate for future loans. Very bad 410 Bad Fair Good 700 Excellent 650 750 300 560

8. #3 Automating Payments As we stated previously, you should pay your bills and loans on time in order to keep a good credit score. However, even when there are justified reasons why some people cannot make their payments on time, many others often miss it because they simply forget about it. This mistake happens when we are too busy with work and other issues and have that payment slipping our minds completely. Be aware though, that even if you are able to pay it a few days or weeks later when you do remember, it will already have created a bad mark on your credit history. Therefore, to ensure that you won’t be making this mistake, you can do one of the following: 1. Set up payment reminders — Some banks offer a service called “payment reminders”. This is a very convenient feature because you can sign up to get a reminder Very bad Bad Fair Good 700 Excellent 430 650 750 300 560

9. 9 via text messages or email every time your payment is due. That way you won’t have to worry about skipping any payments and you don’t have to occupy your mind with due dates. 2. Automate your payments payments is another great way to ensure that you never skip a due date. As the term suggests, these payments are automatically debited from your bank account through your credit card and loan providers. — Enabling automatic What can also help you to stay on track with all the payments, is keeping a separate calendar dedicated to finances only. This way, you will always have a clear presentation of all your financial responsibilities and you won’t miss any, which will keep your credit score high. Very bad Bad Fair Good 700 Excellent 450 650 750 300 560

10. #4 How Changes Affect your Credit Score A credit score is never a stable, as it always prone to change due to different factors. Specific actions will cause your credit score to increase or decrease, depending on the action itself. As credit scores are based on the information from your credit report, any changes in the report will immediately affect your score. What you must consider is that one single thing can affect multiple items on your credit report. For example, if for some reason you decide to close two accounts that you own, that action will not only lower the number of your open accounts but it will also decrease the total amount of available credit and increase your utilization rate, which we will discuss later. As you can see, one single action can cause a chain of reactions, eventually leading to your credit score increasing or decreasing. Therefore, you should be aware of the Very bad Bad Fair Good 700 Excellent 470 650 750 300 560

11. 11 consequences that may take place if you make certain actions that will affect your credit report. It is, however, difficult to accurately foresee how one specific action will impact one’s credit score. If you’re not sure whether taking a certain action is a safe move, make sure to check your credit report, consider what consequences the action may cause, and if you’re still not sure, get some advice from a professional. Either way, you must know that the credit score is a number that’s constantly changing in accordance to your financial activities so you need to balance out your actions if you want to keep your score consistent. With your credit score report you will also get the list of credit risk factors, which will give you insight into what kind of impact certain actions might have on your score. Very bad Bad Fair Good 700 Excellent 490 650 750 300 560

12. #5 Finding Factors that Lower your Credit Score As we mentioned above, each person’s credit score is different and brings along different risks. Within your report, you will get a brief insight into the factors that can lower your credit score and actions that may be too risky to take. Of course, certain factors are more important than the others, as they will affect your credit score more. In order to improve your credit score, you must check your credit reports for the factors that have a negative impact on it, and eliminate them in your future financial actions. It is important to emphasize the process of finding these factors as a crucial step in trying to improve your credit score. It is possible that the report contains incorrect information and is thus lowering your score, which is a common situation. The two factors that are definitely most important when it comes to credit score calculations are the payment history and the credit utilization rate. Bad credit history has possibly Very bad Bad Fair Good 700 Excellent 510 650 750 300 560

13. 13 the worst impact on a credit score and, if you find that to be the factor that is lowering your score, you must start working on improving your payment history as soon as possible. The more positive actions you gather in your payment history, the sooner your credit score will increase. Other factors that may be lowering your score are late payments, high credit balances, moving the debts around, etc. What’s important to remember is that each person’s credit score is affected differently by different factors. You have to find what is causing your score to be low and work on those specific factors. Logically, to improve your credit score you must first bring it to a decent level and learn how to be consistent with your actions and at least keep the score in place, if not moving it up. Very bad Bad Fair Good 700 Excellent 530 650 750 300 560

14. #6 Reducing your Debts One of the best things you can do to improve your credit score is to reduce your debts. This sounds easier than it is, but don’t worry, there is a process you can follow to get there. Firstly, stop using your credit cards and get your credit report. From there, extract a list of all your accounts and recent statements to see how much exactly you owe on each account, as well as what interest rates you must pay. With this information at hand, organize your budget to start paying off those debts. Always start by paying off the highest interest rates first. You will find it easier to achieve this by putting aside as much budget as possible for paying off these amounts. On your other accounts, try to maintain minimum payments. Some people keep moving their debts around, which eventually causes their credit score to drop drastically. Very bad Bad Fair Good 700 Excellent 550 650 750 300 560

15. 15 Instead of doing so, it is much better to actually pay off those debts as soon as possible. In some cases, people are having trouble paying off their debts and making ends meet at the same time. If you find yourself in that situation, it would be best to look for a good credit counseling service to help you out with your issue. Reducing your debts and keeping the payments minimal is going to have a great impact on your credit score. However, if that’s going to cause you more financial difficulties, you shouldn’t put all your money towards achieving this goal but rather do it gradually. Starting today, a step by step process is going to get you closer to your goal. Besides, credit counseling services are always available to clear out any confusions or concerns that you may have regarding your credit status. Very bad Bad Fair Good 700 Excellent 570 650 750 300 560

16. #7 Controlling your Balances Your balances say a lot about your credit responsibility. A very important factor that impacts you credit score is the amount of revolving credit you have versus the amount of credit you are actually using. The smaller the percentage of this calculation, the better it affects your credit score. The optimum number you should go for is 30% and even lower if possible. To achieve this, you should pay down your balances and try to keep them low most of the time. If you have many small balances on a number of different credit cards, it would be best for your score to try and eliminate all of them. You may want to get informed whether the credit card issuer accepts multiple payments throughout the month. If so, you would be able to improve your credit score by lowering down multiple balances over one month. Something you should definitely avoid doing is charging different amounts on different Very bad Bad 590 Fair Good 700 Excellent 650 750 300 560

17. 17 cards instead of charging one card for the whole amount. For example, charging 60$ on one card and 40$ on the other would hurt your balance more than charging the full 100$ on the same credit card. Lowering your balances is the first step to controlling them and, once you reach that desirable goal, try to be consistent with your payments to keep those balances in place. Besides controlling the balances, you can significantly boost your credit score by avoiding charging separate amounts instead of one full amount on one card. The more you avoid things that sink your credit score, the better are your chances to improve it. Remember to gather information on all your balances and start controlling them as soon as possible to get that score rising faster. Very bad Bad Fair Good 700 Excellent 610 650 750 300 560

18. #8 Understanding the Credit Limit Having a good understanding of the term “credit limit” is going to help you find your way to boost your credit score and qualify for the loans you are interested in. A credit limit is the maximum amount of credit that a certain credit card company allows you to spend on a single card. It is also the maximum amount of credit an institution will lend you. Credit limits are not the same for every borrower. Each credit limit is set according to your information specifically. The thing about credit limits is that they appear on your credit report and, since the credit score is based on this report, the credit limit is going to take part in forming of your credit score. Some credit card issuers tend to increase one’s credit limit over time and people are generally concerned about this hurting their score. However, the increase of credit limit does not affect your score negatively. In fact, it can help better your score and this is why: the fact that your credit score is high Very bad Bad Fair Good 700 Excellent 630 650 750 300 560

19. 19 but your balances low shows that you are responsible when it comes to charging your credit cards, which lenders appreciate and look for. This also helps better your credit utilization ratio, which is very significant for your overall score. The further away you are from maxing out your credit limits, the more responsible you look in the eyes of the lender. Besides maxing out on your credit limits, multiple lines of credit on a credit report can hurt your score as well. If your credit card issuer increases your credit limit you don’t have to ask them to lower it because they are doing you a favor. Keep the credit limit high and your balances low, as that is a great combination for increasing the overall credit score. Remember, the higher your credit limit, the bigger are the chances lenders are going to approve you for desired loans. Very bad Bad Fair Good 700 Excellent 650 650 750 300 560

20. #9 Improving your Credit Utilization Credit utilization is one of the major factors that affect your credit score, right after the payment history. The above mentioned credit limit affects your credit utilization, which is another reason why you should be taking care of it. Your credit utilization ratio is a result of a simple calculation: dividing you total credit balances by your total available credit. In this case too, the lower the result, the better it is for your credit score. Therefore, it is best to have a low credit utilization ratio when wanting to improve the overall credit score. 30% or lower is the optimum amount you should be aiming for when it comes to the credit utilization ratio. If that seems impossible at the moment, don’t worry, start working on it step by step and it will eventually lower down to the desired amount. The reason why low credit utilization ratios are preferable is because this information tells your lenders that you haven’t Very bad Bad Fair 670 Good 700 Excellent 650 750 300 560

21. 21 maxed out on your credit limits. That implies that you are financially responsible and that you can manage your credit well, which is what they look for in new borrowers. High credit utilization ratios, on the other hand, tell the lenders that you don’t really know what you’re doing when it comes to keeping a good credit score. When it comes to improving your credit utilization ratio, there are two things you should know. Firstly, ensure your credit limit is high while your balances stay low. If your credit card issuer increases your credit limit keep it that way (we explained why in step #8). Secondly, pay off your debts and consistently track those balances to keep them low. We’ve also went over that in the above sections of this guide. As long as you keep consistently checking your balances and controlling them while keeping the credit limit high, your credit utilization ratio should work in your favor. Very bad Bad Fair Good 700 Excellent 690 650 750 300 560

22. #10 Using Several Different Credit Cards Now here’s a thing, for some reason people think opening up new credit accounts is going to improve their credit score, which is not the case. Having several credit cards won’t directly hurt your credit score, but it won’t do it good either. What does hurt your score, however, is the way you handle the credit cards you own. Each credit card drags along its credit history, the payment history and the amounts you will owe, which are all the factors that indeed have a lot of impact on your credit score. With a more than necessary amount of credit cards, you may find it difficult to keep all these factors in check in order to maintain your good credit score. Upon applying for a new credit card, the company will have to check your credit report, that is, make an inquiry that will appear on your report. Those inquiries cost you a small portion Very bad Bad Fair Good 700 Excellent 710 650 750 300 560

23. 23 of your credit score, from 2 to 7 points, so opening one new credit card won’t hurt your score that much. However, if you apply for multiple credit cards, you will see the difference in your score. In addition, opening up new accounts will lower your average account age, which also has its effect on your credit score. Therefore, don’t open new credit cards unless it is necessary and especially avoid doing so in a short amount of time. You don’t want to seem like a risky player to the lenders because they usually put those aside or assign them higher interest rates to pay. To keep your credit score fit, it is better to focus on controlling the accounts you own, rather than opening up a bunch of new ones because you think that may be good for your score. Stick only to the accounts you need and invest your time and money into those. Very bad Bad Fair Good 700 Excellent 730 650 750 300 560

24. What not to do Sometimes it is best for your score to simply stop doing things that are keeping it down. Once you understand which factors and activities are negatively affecting your credit score, you will more easily pick it up and grow it to the desired heights. So, what not to do when it comes to taking care of your credit score? For starters, don’t close your unused credit cards thinking it may raise your score a bit. In fact, keeping these cards open is doing a favor to your score because, as long as you don’t use those balances, the unused cards have a good effect on your report. As we already explained above, don’t open lots of new credit cards just to increase your score because it doesn’t work that way. One of the best, yet most difficult, tips to implement is to be consistent with your payments and don’t miss any. As difficult Very bad Bad Fair Good 700 Excellent 750 650 750 300 560

25. 25 as it is to pay all bills in time, the more you do it the better it is for your score. If you see any errors or negative information on your credit report, don’t ignore it as that is keeping your score down most of the time. Instead, dispute all errors and try to work on the negative aspects to bring them to the positive side. Last but not least, don’t stress too much about keeping your credit score perfect. Lenders aren’t looking for perfect scores, all they want to see is that you know what you’re doing when it comes to finances and that you’re responsible enough to pay all your debts on time.. Very bad Bad Fair Good 700 Excellent 770 650 750 300 560

26. Conclusion Altogether, if you’re hoping to get approved for new loans, it is in your best interest to work on improving your credit score. You can do so by following the ten tips we have given you above, which you should start implementing as soon as possible. Besides focusing on increasing your score, you should focus on not lowering it any further as well. Therefore, avoid doing actions that are bad for your credit status because once they’re on your credit report, they’re going to stay there for a while. Don’t stress too much about past mistakes because more recent information always matters more than old information. Thus, the better your actions are from now on, the sooner your credit score is going to jump back up. If you’re struggling financially and can’t get a hold of a good score while fulfilling your other financial needs, you can always turn to credit counseling services for help and they will find the best solution for you! Very bad Bad Fair Good 700 Excellent 790 650 750 300 560