Your credit score - a three digit number in which lenders use to decide the likelihood they’ll be paid on time if they grant you a credit card or loan. It has a great deal of importance in your financial life which is why you should spend time generating the best score you can, the higher the score the better. If your score is not what you would like it to be or you are just looking to improve, below are some tips to help master your finances and improve your credit score (FICO score) over the short and long term.
Keep Up With Your Score
The first step you can take to improve your scores is to check them. There are three major credit reporting agencies you can refer to: TransUnion, Equifax, and Experian. Your credit report will tell you what factors contribute to your credit score so you know which areas to improve on. Each credit bureau will provide you with one free report per year, which includes credit and payment history. More than once a year, credit scores must be purchased separately. You can order them at AnnualCreditReport.com. Your credit score can change over time, so check your scores regularly.
Pay Your Bills On Time
FICO credit scores are widely used among lenders. Payment history makes up the largest percentage of this report (35%). Not paying your bills on time or paying an amount lower than the balance can negatively impact your credit score. You can automate bills directly from your bank account to ensure they are always paid on time. It may also be helpful to utilize Experian’s free resource: ExperianBoost. ExperianBoost allows you to factor in your utility and cell phone payments which, if paid in full and on time, can boost your credit score.
Credit score reductions won’t last forever (late payments typically stay on your credit report for seven years), but it is important to think about any loans you may need in those next seven years. Paying your bills on time is the easiest way to keep your credit score up and be able to fulfill your financial goals.
Lower Your Credit Utilization Ratio
The credit utilization ratio tells you how much of your available credit you are currently using. For example, if you have $5,000 in total credit but there is only a balance of $1,000, your credit utilization ratio would be 20%. You want to get this ratio below 30%, or else it can negatively impact your credit score. To lower your credit utilization ratio, you can ask to raise your credit limit. This will give you more available credit and will thus lower your credit utilization ratio.
Limit Your Requests for Credit
While, as discussed above, it can be advisable in certain situations to ask for a credit limit increase, this should be done with caution. Too many requests for new credit of any kind (also referred to as hard inquiries) can damage your score. They may indicate to lenders that you are asking for more credit because of an impending financial difficulty.
Keep Your Old/Unused Cards Open
Keeping your oldest lines of credit open can be beneficial when trying to raise your credit score. They will increase your utilization ratio and show lenders the length of your credit history.
Have a Mix of Credit
Instead of solely using one form of credit, having a mix of different kinds of credit (such as credit cards, mortgages, auto loans, etc.) can help boost your credit score. If you are looking for a new vehicle or an educational opportunity, you may want to consider taking out a loan you can realistically afford. If you pay this in full and on time, it will boost your score.
If there is an error on your credit report, you can handle the dispute by reaching out to the credit reporting agency and telling them why you believe certain information is inaccurate. You should provide documents that support your stance and clearly identify what the mistake is. It is important to regularly check your credit scores to search for any inaccuracies. All of the credit bureaus have an option to submit disputes online so it’s relatively easy to resolve any issues. By law, they must respond or resolve the issue within 30 days.
In summary, remember it is important to maintain a good credit score as it can affect many aspects of your life. Credit checks are often run by employers, landlords, insurance companies and even cell phone providers. Strong credit allows you to make big purchases and even save money, so it’s worth the focus and attention. Be sure to spend within your means so you can stay in control of the factors that matter.
To read more ways to improve your credit score, check out this article: https://thefinanciallyindependentmillennial.com/how-to-improve-your-credit-score/
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