At some point in the future, you’ll want to buy a new house in a fancy neighborhood or buy the newest model of a certain car. To do this, you’ll need to get a loan. However, if your credit history isn’t the best one out there, your chances of getting a loan will dim considerably. This is when you should think about improving your credit score. Although it might take a bit of time to do so, achieving this within the realm of possibilities. So, continue on reading our guide to know the best strategies to improve your credit score!
Let’s think first of why lenders inquire after your credit score first. This is because credit scores indicate how reliable and trustworthy you are when it comes to paying bills or installments. The higher your credit score is, the likelier you’ll get approved for a loan. Thus, one of the reasons why your credit score is low is because you didn’t pay your bills on time. Therefore, one of the good ways you can improve your credit score is by paying your bills right on time. You can even pay your bills earlier if possible.
Bills include student or auto loan installments, phone bills, utility bills, and so on. If it’s difficult to keep track of all your bills’ due dates, you can use tools to help you out, such as calendar reminders or automatic payments.
Review Your Credit Reports Carefully
In order to improve your credit score, you need to know what you’re dealing with in the first place. Knowing all the details about your credit history, utilization ratio, and credit score will help you place plans for how you’re going to improve them. You can easily get a credit report from one or all of the three major credit bureaus: TransUnion, Experian, and Equifax. You can do this by going through the official Annual Credit Report website. Make sure to review each report carefully to understand what’s affecting your score.
The most common reasons that can affect credit scores are low balances on credit cards and loan accounts, older credit accounts, on-time payments So, make sure to keep an eye out for these factors.
Pay off Your Debts Gradually
When looking at your credit reports, it’s important to consider your credit utilization ratio. This figure is calculated by adding your credit card balances and dividing the product by the total credit limit. For instance, if you use $2,000 each month and the total credit limit for all your credit cards is $10,000, then your utilization ratio is 20%.
Typically, lenders like to pick borrowers with a utilization ratio that is 30% or less. This number influences your credit score eventually, so it’s important to improve that number as well.
Paying off your debt and keeping your credit card balances low will assist you in keeping your utilization ratio below 30% and, by extension, your credit score. You might also become an authorized user to the account of another person, provided that this person is using their credit responsibly as well.
Minimize Your Credit and Hard Requests
In credit history, there are two types of inquiries: soft and hard requests. The former includes inquiries like checking your credit, checks provided by financial institutions, or credit card companies who check your files to decide whether or not to send your credit offers.
As their name suggests, soft inquiries won’t affect your credit score Hard inquiries, on the other hand, will affect your credit score drastically in the span of two years. Examples of hard inquiries are applications for an auto loan, a new credit card, or a mortgage.
While these inquiries are indispensable, they can deal hefty damage to your credit score if you’re not too careful. That doesn’t mean you can’t make hard inquiries, though; you can make one every once in a while, but be sure to space them out so it won’t affect your credit score much.
The reason why it’s ill-advised to make one hard inquiry after another is that you’ll seem desperate for money, financially speaking. Thus, in the eyes of banks and lenders, you’ll pose greater risk, which won’t compliment your eligibility for a loan by any means.
Keep Your Old Accounts Open
If you’ve viewed your credit report before, you probably remember seeing an ‘age of credit’ portion in the report. This indicates how old or how long you’ve had your credit accounts. This number is of great importance to lenders and banks alike; the older your credit age is, the likelier you’ll be approved for a loan.
Thus, it’s important not to close down any old credit accounts. Even if their credit history will remain stamped on your report, they might increase your utilization ratio, especially if you have a balance on other accounts/ cards.
Consider Credit Monitoring Tools
More often than not you will find yourself unable to track your credit score and your finances in general. This is where credit monitoring tools come in. Credit monitoring tools and services are an excellent way to easily view how your score changes over time.
Some of the changes that these tools will help you pinpoint is the addition of a new account or paid-off account. These tools should also give you access to one of your credit scores at the very least, and are updated on a monthly basis. Doing this will help you understand which aspects are affecting your credit score so you can improve it accordingly.
You might think that improving your credit score might be impossible to achieve, but it’s certainly doable with a little bit of action and time. Make sure to consider the tips mentioned in this article, and you’ll have a high credit score in no time!