Improving your credit score is the first step toward regaining control of your finances.
Low interest rates on debt — from mortgages to vehicle loans to credit cards — are associated with a high credit score. Furthermore, having a low credit score might make it difficult to not just qualify for a loan in the first place, but also to find work or rent an apartment.
As the borrower safeguards put in place at the outset of the pandemic begin to expire, now is an excellent opportunity to improve on your credit. In October, debtors with federal student loans will be required to resume payments. The deadline to apply for mortgage forbearance is September 30. The most recent eviction moratorium runs out on October 3rd.
If you’ve been taking advantage of these programs, having improved credit will open up more choices for you when they’re no longer available. Whether or not you were affected by the pandemic, the sooner you start working on your credit, the better. Your efforts will not immediately increase your score, but they will put you on the correct route.
To improve your credit score, follow these steps:
Number 7. Pay your bills on time
Payment history is the most crucial element for both your FICO and VantageScore, according to Experian. A track record of on-time payments is a solid indicator to a lender that you’ll handle future debts properly as well.
Late payments, defaults, repossessions, foreclosures, and third-party collections are all things to avoid, says John Ulzheimer, a credit analyst who previously worked for FICO and Equifax. “It’s also a bad idea to declare bankruptcy. Your credit score will be harmed by anything that indicates non-performance of a liability.”
Number 6: Maintain a low credit utilization rate.
Check your balances against your credit limit to make sure you’re not using too much credit, which can put you at risk.
Ulzheimer suggests aiming for a ten percent usage rate. “The higher that ratio is, the fewer points you’ll earn in that category, and your scores will definitely suffer,” he explains. “In fact, those with the highest average FICO ratings had a 7 percent utilisation rate.”
Your use rate may be affected by the date your credit card company reports to the credit agencies.
FICO’s rating methods, according to Ulzheimer, make no distinction between individuals who pay in full each month and those who carry a balance. Your score is based on your utilization rate at the moment your issuer reports. VantageScore, on the other hand, takes into account whether you pay in full or carry a balance from month to month.
Consider consolidating with a 0% introductory rate balance transfer credit card if you’re struggling with huge balances and growing interest payments on your cards, but make sure you understand when and by how much the rate will increase.
Number 5: Keep old accounts active.
When you finally pay off your student loans or car loan, you may be eager to have any traces of it removed from your credit report.
However, if you paid on time and in full, those debt records may actually enhance your credit score. It’s the same with your credit card accounts.
“A paid-in-full account is a desirable thing; but, cancelling an account in the hopes of improving one’s credit score isn’t something customers should do automatically,” says Nancy Bistritz-Balkan, vice president of communications and consumer education at Equifax. “The types of responsible behaviors that lenders and creditors look for include accounts with a long history and a reliable track record of paying payments on time, every time.”
Closing a credit card account will damage your credit score since your maximum credit limit will be reduced. Your utilization ratio will increase if you still have balances on other cards or loans. It’s better to retain the card with a zero balance.
Any poor debts that may have a negative impact on your credit score are automatically eliminated over time. Bankruptcies can linger on your credit record for up to ten years, while late payments and delinquencies such as collections, repossessions, foreclosures, and settlements can stay on your report for up to seven years, according to Ulzheimer.
Number 4: Make use of score-increasing programs.
The number of accounts you have and the average age of those accounts are both crucial variables in your credit score, putting those with little credit history at a disadvantage.
Experian Boost and UltraFICO are credit-building products that allow users to supplement a weak credit profile with additional financial data.
You can connect your online banking data to Experian Boost and allow the credit bureau to add telecommunications and utility payment records to your report after opting in. When UltraFICO calculates your score, you can give permission for your financial data, such as checking and savings accounts, to be examined alongside your report.
Number 3. Only apply for credit you need
A hard inquiry is made on your credit report every time you apply for a new line of credit. This type of question briefly decreases your score. It is not a good idea to apply only to see whether you are approved or because you have gotten a pre-qualified offer of credit.
If it’s only one strong credit pull, the impact will be minimal. A series of hard inquiries, on the other hand, may indicate to lenders that you are taking on too much debt. According to a TransUnion representative, the consequences of a severe credit pull on your score might linger up to 12 months.
If you do need to apply for new credit, do some researches to see if you’re a good fit before you apply. Obtain a pre-approval or pre-qualification if possible, as these often result in a soft rather than a hard credit pull. Soft pulls have no bearing on your credit score. You don’t want to risk reducing your score by applying for a job that isn’t available.
You should also avoid applying for multiple credit cards in a short period of time or taking out a substantial loan such as a mortgage.
You can keep hard queries to a minimal when shopping for a mortgage, vehicle loan, or personal loan by comparing rates in a short amount of time. Within a certain time frame, applications for the same type of loan will only appear as a single hard inquiry. This period might last from between 14 to 45 days, according to FICO.
Number 2. Be patient
You won’t see a significant increase in your credit score immediately. Developing strong long-term credit practices is the greatest method to attain an outstanding score.
The average age of information and the oldest account on your report, according to Ulzheimer, are two key criteria that go into your score.
Before you can max out those categories, you’ll need to have credit for a few of decades, Ulzheimer adds. “It takes a very long time to improve a low score, but it just takes a very short time to trash a good score.”
Establish excellent habits, such as paying your bills on time, maintaining a low utilization rate, and applying for credit only when absolutely necessary, and you should see your credit score improve over time.
Number 1, keep an eye on your credit report.
When you check your own credit, a soft inquiry is made, which does not have the same impact as a hard inquiry.
Monitoring the changes in your credit score every few months might help you figure out how well you’re managing your credit and whether you need to make any adjustments. However, your credit score should not be the main factor in every financial decision you make.
“I wouldn’t recommend basing every decision on a credit score, but basing it on what matters,” says Jeff Richardson, a VantageScore spokeswoman. “Priority one is to focus on your financial health and the health of your family.”
It’s critical to keep an eye on your credit reports and ratings for your financial well-being.
Suspicious behavior on your credit reports is almost always an indication of possible fraud. To avoid any potential harm, keep an eye on your credit activity.
How to Get a Copy of Your Credit Report
Under normal conditions, each of the three main credit reporting bureaus (Experian, TransUnion, and Equifax) would provide you with one free report every year. As a result of COVID-19, you can get a free weekly report from any of the bureaus until April 2022.
Examine your credit report for any inaccuracies that could be lowering your score. If you uncover any errors, such as unrecorded payments, you can get them erased by contesting the information with the credit bureau directly. They have a legal obligation to investigate every matter and settle it in a timely manner. However, keep in mind that only inaccurate data can be removed from your report.
Each credit report, according to Richardson, will have the information you need to boost your score. “If you’re genuinely in a position where you need to raise your score, there are four or five bulleted statements about your credit profile that can help you develop a road map of what to do,” he says.
A numerical or text code may also appear in your report, but there is no explanation as to what it means. These are factor codes, and they signify items that could lower your score. ReasonCode.org, a free website from VantageScore, allows you to enter the code from any credit report and obtain an explanation of what it means as well as suggestions on how to fix the problem.
You can seek professional assistance if you’re unsure whether your report contains errors or if you’re having trouble resolving concerns on your own. Credit repair agencies can not only help you locate and remove incorrect information on your credit report, but they may also assist you lessen the impact of true negative items.