10 Tips to Boost Your Credit Score
A credit score, which is a summary of the credit history as it appears on a credit report, is a determining factor when seeking credit. Whether renting an apartment or applying for a job, your credit score will have a significant impact on all aspects of your financial life. The following are the top 10 tips to boost your credit score which will open more doors for obtaining credit and getting better interest rates.
1. Pay Bills On Time
Payment history, which includes not missing payments and making payments for the correct amount, comprises 35% of a credit score. This is because various types of loans and lines of credit all require monthly payments for minimum amounts. Insights into a persons financial responsibility and decision-making can be summarized by their ability to pay loans and credit card balances on time.
2. Pay Down Balances
Taking steps to eliminate excessive debt such as minimizing credit card use and making more than minimum monthly payments are crucial to boosting your credit score. The amount of available credit in relation to the amount of credit used is called the credit utilization ratio. Many lenders, especially those looking to issue new credit, take this ratio into account as it determines whether or not a borrower is overextended or likely to default in the near future. This is the next most important figure in a credit score and comprises 30% of its overall value.
3. Raise Credit Limits
If you're unable to pay down outstanding debt as quickly as necessary then consider asking for your credit limits to be increased. This may be difficult if you have a questionable payment history since it is more of a temporary solution and doesn't address the underlying causes of excessive debt. As with most things however, it doesn't hurt to ask and if you can get even a 10% increase in your credit limit it can lower your debt utilization ratio and boost your credit score.
4. Remove Black Marks
Up to 40% of all credit reports contain inaccurate or incorrect information. Processes are in place at each of the three major credit reporting agencies to allow consumers to correct inaccurate information in a timely fashion. Once evidence has been provided in writing, a credit bureau has 30 days to respond to the claim and either remove the information or explain why it will be staying. Don't let bad information prevent you from getting credit or qualifying for a loan.
5. Don't Co-Sign Loans
It can be nice to cosign a loan for a friend or relative when they're looking to purchase a used vehicle are trying to rebuild their credit. In most scenarios however it is best to avoid cosigning loans since any missed payments or defaults will be reflected on your credit report. This can adversely affect your ability to receive financing and can destroy decades of hard work building your own credit history.
6. Minimize Hard Inquiries
Many lenders understand a series of credit report inquiries over a short period of time. This is common when purchasing a vehicle or qualifying for a mortgage. Try to not only minimize the number of inquiries on your credit report but also shorten the time to as little as possible. Lenders consider many inquiries over a long period of time to be a red flag.
7. Don't Close Accounts
Closing existing lines of credit, such as credit card accounts, can raise your debt utilization ratio and also eliminate years of good payment history. Try to maintain 3 to 6 active credit card accounts. One account should be used for daily purchases, one should be used as an emergency credit card and the others should be rotated by making small purchases over time to keep the accounts active.
8. Rotate Credit Cards
An open line of credit with no activity does nothing to show future lenders your responsible financial behavior and ability to manage outstanding debt. Rotate your credit cards periodically and then pay the balances in full to continue developing a credit history. Some companies may even close your existing credit card if there is no activity for a certain period of time.
9. Vary Your Credit Mix
There are two types of available credit for consumers which are called revolving and installment. Revolving credit includes credit cards which often has an outstanding balance which increases or decreases in relation to payment amounts. Installment lines of credit include mortgages and auto loans which are paid on an amortization schedule at a fixed interest rate for a set period of time. By having different types of credit it shows lenders your ability to manage different types of loans responsibly.
10. Be Patient
All of these steps and more take time to implement and it may not have an immediate impact on your credit score. Payment history is something that can only be established over a year or more and paying down debt to lower your credit utilization ratio may take many months. As long as you stay focused and act responsibly you should be able to boost your credit score over time.
