5 Ways to Improve Your Credit Score
Improving your credit score is about more than just seeing that three-digit number climb closer to 850.
A good credit score can allow you to qualify for affordable loans when you need them to finance the purchase of a new car, home or business. It may also help you qualify for credit cards with better rewards and lower rates.
According to the Huffington Post, a strong credit score can set you apart from other candidates when applying for a job and may even help you strengthen relationships. These five tips may help you learn how to build credit.
1. Know Your Credit Score
The first step in improving your credit is knowing your current credit score. Shown as a three-digit number between 300 and 850, your credit score is a combination of scores from the Fair Isaac Corporation (FICO), Vantage Scores, and proprietary scores from Consumer Reporting Agencies (CRAs) such as Equifax, TransUnion and Experian. Although the Consumer Financial Protection Bureau considers FICO the most accurate source, Annual Credit Report can give you an even more comprehensive picture of your credit at no cost. Once you know your score, you can take action to improve it, spot any mistakes or watch the numbers rise. Regular monitoring of your credit score can also help you pinpoint fraud and help you take action immediately.
2. Make Payments on Time
Approximately 35 percent of your credit score is determined by whether you pay your bills on time. Along with late fees and fines that you may incur, paying your bills late indicates to creditors that you may be a financial risk. Following these tips may help you to pay your bills on time.
- Pay bills immediately when they arrive.
- Set up direct deposits for all major payments each month.
- Schedule bill payments on your calendar so that you know when to expect them.
- Keep all paper bills in one place and go through them at least once per month.
3. Budget Beyond Minimum Payments
The faster you repay your debt, the faster you may be able to improve your credit score. Paying only the minimum payment each month may result in the amount you owe increasing instead of decreasing. The average minimum payment for a credit card is 1 percent of the newest balance, but paying such a small amount won’t do much for your credit score or your debt, and it will cause you to spend more on interest payments over time.
4. Learn Your Credit Utilization Ratio
To build your credit score, learn what the credit utilization ratio is and how it affects you. This ratio represents the amount of credit you use versus how much is available to you. Staying below a credit utilization ratio of 30 percent is widely regarded as the sweet spot. Experian suggests that the lower your ratio, the better your credit score will be.
5. Open One New Line of Credit at a Time
Opening up several lines of credit at once in the form of credit cards, business loans, home loans or personal loans can have a negative effect on your credit score. While there is nothing wrong with having loans and using credit, try to use existing forms of credit rather than opening several new ones within a short time.