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How to Improve Your Credit Score – Follow 8 Steps to Boost Your Credit Score
Your credit profile will dictate the best course of action for raising your credit score. If you want to know how to improve your credit score, you should familiarise yourself with the elements that go into it, such as payment history, quantities due, duration of credit history, credit mix, and new credit.
Improving your credit score is possible through a variety of means, such as paying bills on time, reducing balances, staying away from unneeded debt, and more. However, it could be challenging to determine where to begin based on your circumstances.
No matter if you are starting from square one or trying to fix your credit after a few mistakes, knowing what goes into your score will help you make the right decisions. Therefore, bearing that in mind, I have compiled a list of seven strategies for raising your credit score, along with an estimate of the time it may take for you to begin to notice an improvement.
1. Always Pay When Due
Your debt payment history is the most important component in determining your FICO® Score☉, which amounts to 35% of your total score. Each of the three major consumer credit reporting agencies receives information about past due, overdue, and nonexistent payments. If you want to enhance your credit score, the most important thing is to always pay your bills on time.
If you are experiencing difficulties with punctual payment processing, you can take the following steps: establish autopay to cover the minimum amount due and utilise your online account to set up calendar reminders and issues. You have the option to sign up for Experian Boost® and receive credit for payments that are not usually reported to the credit agencies. This includes certain streaming subscriptions, qualified utilities, mobile, insurance, and rent.
In the long run, being a reliable payer might lead to a gradual improvement in your credit score. A late payment that is more than 30 days past due will hurt your credit scores for seven years, but if you pay your bills on time and catch up, the bad effect will fade.
2. Reduce Balances on Revolving Accounts
Effect on credit: Thirty per cent of your FICO® Score is based on your outstanding balances, and a big part of that is your credit utilisation rate, which is the proportion of your available credit that you are using on revolving accounts like credit cards. Although it is advised by some experts to maintain your utilisation rate below 30%, there is no absolute rule. Maintain a low level if at all feasible.
Possible steps to follow: Pay off your high-balance credit cards as soon as possible. To reduce your credit card balance, you should think about many options, such as:
- Loan for consolidating debt
- Card for transferring balances
- Budgeting strategy
3: Plan for paying off debt, like the avalanche or snowball approach
If you pay off your credit card in full every month but still have a high utilisation rate because your credit limits are too low, try paying it off early or spreading out your payments throughout the month.
Time required: Usually, credit card companies update the credit bureaus with your balance and payments once a month. Therefore, you might expect to see some progress in reducing your credit card debt within a few months.
4: Keep Your Long-Term Account Open
Credit impact: The length of your credit history is a factor that contributes 15% to your FICO® Score. The age of your oldest account and the average age of all of your accounts play a significant role in this calculation. Credit card accounts can remain open indefinitely, in contrast to loan accounts that are normally closed upon repayment. When you close an old credit card account, it could hurt your credit score.
What you can do: Use your oldest credit card sometimes or set up a little monthly payment on it to keep it active, even if you do not use it anymore. Get in touch with your card issuer to find out whether you may change or downgrade your card if it is not a good fit anymore or if there is an annual fee. If this works for you, you can transfer to a new card while keeping your existing credit history.
Time required: Your credit history is built up over several years. The downside could become apparent fast, though, if you suddenly delete an old account or open a slew of new credit accounts all at once.
5: Find out more about the impact of credit history length on your score by clicking here.
Experiment with Different Credit Types Credit mix is a factor that makes up 10% of your FICO® Score and entails managing various forms of credit. A person’s credit mix will be stronger if they have many loans, such as a mortgage, an auto loan, and two credit cards.
Even though it will not play a huge role in deciding whether you can get a loan or credit card, a well-balanced credit history can assist you get even better rates.
Possible steps to follow: To satisfy your financial obligations, you may apply for several forms of credit, which will gradually increase your credit mix. Applying for a beginner credit card and a credit-builder loan can be helpful if you are just starting to develop your credit history.
When you are up and running, though, it is best not to take on more debt than you need to establish credit.
Time required: Take your time; your credit mix is not a major factor in your score. It may take a while to diversify your credit mix because you can only apply for new accounts when you need them.
6: Decrease the Number of Times People Can Apply For Credit
Effects on credit: A hard inquiry will be made on your credit report(s) by the lending institution almost every time you apply for credit. Ten per cent of your FICO® Score is based on these enquiries and the length of time since you created a new account.
Multiple hard enquiries within a short time, particularly when applying for credit cards, could have a cumulative negative effect on your credit score, even if each inquiry usually knocks off less than five points.
Possible steps to follow: To keep the number of hard enquiries to a minimum, apply for credit only when necessary. Find out if the lender offers prequalification before you apply for a loan or credit card. This will give you an indication of your eligibility and possible terms using a soft credit check, which will not affect your credit score.
Newer versions of FICO® Score will merge many enquiries into one for scoring reasons when you compare mortgage, auto, or student loans. The catch is that you need to finish rate-shopping within a short period, usually between 14 and 45 days, depending on the version you choose.
Time required: Hard enquiries can affect your FICO® Score for up to a year, but they stay on your credit reports for two years.
7: If Your Credit Report Includes Inaccurate Information, Challenge It
A high credit card balance or a late payment, two examples of major problems that may be exacerbated by inaccurate information in your credit report, can have a devastating effect on your credit score. Having numerous negative entries on your credit reports due to fake accounts is a common symptom of identity theft.
What you can do: Contact the three main credit bureaus to dispute any erroneous or fraudulent information that appears on your report. Begin with obtaining your complimentary Experian credit report. Then, go to AnnualCreditReport.com to acquire your free Equifax and TransUnion credit reports every week.
Find any unfamiliar material in your reports and review it. To launch an investigation with Experian and the other credit bureaus, follow the dispute process if you find false details.
Time required to resolve: 30 days is the usual time frame for credit disputes. Your credit report will be updated or deleted if the credit reporting agency accepts your dispute as legitimate.
8: Ask to Be Added as an Authorised User:
If you are just starting with credit or are trying to restore your score, asking a loved one to add you as an authorised user on their card will help your score right away. However, the effect may differ based on your credit profile’s composition and the way the credit card is handled.
Possible steps to follow: Have a parent or other trusted family member add you to their account as an authorised user. Be sure the account has a low credit utilisation rate and a good payment history before you proceed.
A month or two after you are enrolled as an authorised user, the credit bureaus will usually receive the whole account history from the card issuer.
