How to Improve Credit Score
With the outlook of the economy always uncertain at best, it’s important to make sure your credit score is as good as possible when looking for finance.
Just having a good score may not always be good enough anymore. However an ever increasing credit score is a sure-fire way to improve your chances of getting a good deal from banks and lenders.
These 5 quick tips will have you popping the champagne bottle in no time!
How to Improve Credit Score
Check Yourself:
If any of the details on your credit report are wrong they can literally end up costing you through a worse score! Check your report and change any details which are not correct. You can also see any old credit or store cards which you may have since forgotten about, and are pulling down your score – pay them off.
Be Attractive on your Loans
Credit lenders can be quite choosy when it comes to deciding who they want to lend money to. If they see you have taken out several loans and credit cards in the past few months, they may consider you an increased risk. Try and space out any applications you make.
Don’t Be Late
One of the biggest killers of a good score is a history of late payments. Prioritize paying off any loans or credit cards you have on-time every month. Set yourself a reminder to always make a payment by a certain day each month.
Spend Money to Make Money
It may seem counter-intuitive, but lenders like to see people who actively use their credit cards to buy things – just make sure you stay within your means and always pay it off each month.
Pay it Off
Where possible, try consolidating multiple loans and cards into one to help reduce the amount of interest you pay and therefore pay them off sooner to improve your score.
FAQ’s about Improving Credit Score
1. What are the basic steps to improve my credit score quickly?
To improve your credit score, you can follow these five simple steps:
- Pay Your Bills on Time: Consistently paying your bills before the due date is crucial since payment history accounts for 35% of your credit score.
- Reduce Your Credit Card Balances: Aim to keep your credit utilization (the amount you owe vs. your credit limit) below 30%. The lower, the better.
- Avoid Opening New Credit Accounts: Each new credit inquiry can lower your score, so limit new applications unless absolutely necessary.
- Check Your Credit Report for Errors: Mistakes on your credit report, like incorrect balances or missed payments, can harm your score. Dispute errors as soon as possible.
- Keep Old Accounts Open: The age of your credit accounts contributes to your score, so keeping older accounts open (even if you don’t use them) helps build a longer credit history.
How long does it take to see an improvement in my credit score?
The time it takes to improve your credit score depends on your financial habits and the specific actions you take. Generally, you can start seeing improvements within 3 to 6 months of consistently paying bills on time, reducing your credit utilization, and correcting any errors in your credit report. More significant changes, such as improving a very low score or recovering from a major negative mark (like a default), can take 6 to 12 months or more.
Does paying off my credit card in full every month improve my credit score?
Yes, paying off your credit card balance in full each month can significantly improve your credit score. It demonstrates responsible credit management and reduces your credit utilization ratio, which directly impacts 30% of your score. By keeping your utilization low (preferably below 30%) and showing a positive payment history, your score will improve over time. Additionally, avoiding interest charges helps you save money.
Will closing old credit accounts hurt my credit score?
Yes, closing old credit accounts can hurt your credit score. When you close an account, it shortens your credit history, which makes up 15% of your overall score. Additionally, it increases your credit utilization ratio since you’ll have less available credit. If you don’t need the card but it has no fees, it’s generally a good idea to keep it open to maintain a longer credit history and better credit utilization.
How do credit inquiries affect my credit score?
There are two types of credit inquiries: soft inquiries and hard inquiries. Soft inquiries (such as checking your own credit) do not affect your score. However, hard inquiries, which occur when a lender checks your credit before approving a loan or credit card, can lower your score by a few points. Too many hard inquiries in a short period can signal financial distress to lenders and have a bigger impact on your score. It’s best to space out applications for credit to minimize the effect on your score.
