Saturday, June 10, 2023

How To Improve Your Credit Score

How To Calculate Credit Card Utilization

How To Improve Your Credit Score Without Debt

Through December 31, 2023, Experian, TransUnion and Equifax will offer all U.S. consumers free weekly credit reports through to help you protect your financial health during the sudden and unprecedented hardship caused by COVID-19.

At Experian, one of our priorities is consumer credit and finance education. This post may contain links and references to one or more of our partners, but we provide an objective view to help you make the best decisions. For more information, see our .

In this article:

Your credit utilization ratio is a number that plays an important role in your credit scoresand one you can improve easily when you pay down your credit card balances. To calculate your credit utilization ratio, use your credit report to compare your credit cards’ balances to their credit limits. Divide the balance by the limit to find your individual and overall .

Your utilization ratio is an important factor in determining your credit scores, and the lower your utilization, the better it is for your scores. Read on to find out how to calculate your utilizationand how to improve it.

Join An Account As An Authorized User

You can also improve credit by joining a trusted family member’s or friend’s credit card account as an . You’ll be able to use the card to make purchases, and the card’s payment history will show up on your credit report. That makes it crucial to pick someone whose credit you will benefit from. Work with the primary cardholder to pay them for your purchases, as they’ll be ultimately responsible for any balance on the card.

Always Make Credit Payments On Time

If you need help in improving your credit rating, you should aim to build a history of good financial management. One of the best ways to do this is by always making your payments in time. Lenders will look for missed payments on credit cards, utility and mobile phone bills, all of which can have a knock-on effect on your credit rating.

If a deadline passes you by, make a payment ASAP. If you think you might miss a payment, let your lender know before it actually happens. Often lenders have a short grace period before informing ratings agencies.

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Increase Your Credit Limit

You can increase your credit limit one of two ways: Either ask for an increase on your current credit card or open a new card. The higher your overall available credit limit, the lower your credit utilization rate . Before asking for a credit limit increase, make sure you won’t be tempted to spend more than you can afford to pay off.

If you are considering opening a new credit card, do your research beforehand. How often you apply for and open new accounts gets factored into your credit score. Each application requires the card issuer or lender to pull your credit report, which results in a hard inquiry on your report and dings your credit score a few points.

“Usually the negative impact of those factors is much less than the benefit to your score of reducing your credit utilization ratio,” Triggs says. Just make sure you don’t apply to too many credit cards over a short amount of time and send a red flag to issuers.

It’s more important now than ever to do your research before applying for new credit because issuers may have stricter terms and requirements in wake of the economic fallout from coronavirus. Check to see what your credit score is beforehand.

Know How Your Credit Score Is Calculated

How to repair a credit score

Once you have your score, know what that number means so you can take the steps to raise it.

“Your payment history accounts for about 35 percent of your score,” said Carrie Schwab-Pomerantz, a certified financial planner at Charles Schwab. “Increase the length of your credit history. This accounts for about 15 percent of your score.”

She advises an easy solution: Keep your credit card balances low.

“Ideally, you should keep the amount you borrow below 25 percent of your available credit limit,” she added. “This accounts for about 30 percent of your credit score. Minimize the frequency of new card requests. This accounts for 10 percent of your score. Keep a combination of different types of installment debt–such as car loans and mortgages–and revolving debt–like credit cards. This makes up the remaining 10 percent.”

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How To Lower Your Credit Utilization Ratio

The utilization ratio calculation looks at two numbers: your balance and your credit limit. Any actions that decrease your reported balances or increase your reported credit limits can lower your utilization rate. These could include:

You don’t need to use every strategy to maintain a low utilization ratepick and choose what works for you and your financial situation.

Consistently Make On Time Payments

The most important factor in determining your credit score is payment history, impacting 35 percent of your overall credit score. Because it makes up such a large portion, its crucial to consistently make on time-payments. Even one missed payment will drop your score substantially, so its imperative that you make payments on time, all the time.

That one missed payment can drop your credit score drastically, and rebuilding it will take a while. Youll have to reestablish a long-term history of on-time payments. Consistency is key here: automated reminders or autopayments can be an easy way to ensure you dont forget to pay that bill each month.

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Get A Loan With The Help Of A Cosigner

Making on-time payments toward an installment loan, similar to making timely payments on a credit card, helps build credit history. Besides using a credit-builder loan, getting a traditional one such as a car loan can add positive information to your credit report and improve your credit mix.

If you can’t qualify for a loan on your own, a cosigner can helpbut make sure the cosigner knows what they are getting into. If you can’t afford to repay the loan, it becomes their responsibility. Also, as always, only seek out a loan if you really need it, not simply to improve credit. Potentially boosting your score should be an added bonus or motivation, not the central reason.

Consider How Many Credit Accounts You Have

How to Build Credit and Improve Your Credit Score

Scoring models consider how much you owe and across how many different accounts. If you have debt across a large number of accounts, it may be beneficial to pay off some of the accounts, if you can.

Paying down credit card debt is the goal of many who’ve accrued debt in the past, but even after you pay the balance down to zero, consider keeping that account open. Not only can closing it hurt scores by eliminating that available credit and increasing your credit utilization ratio, but keeping paid off accounts open can also be a plus because they’re aged accounts in good standing. And again, you may also consider debt consolidation.

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Improve Your Payment History

Your payment history is the most important component of FICO® scoring models. Late and missed payments will reduce your credit scores, and bankruptcies and collections can cause significant damage. This negative information will remain on your credit report and impact your credit scores for seven to 10 years.

Your scores often take into account the size of your debt and the timing of your missed payments. The bigger your debt is, and the more recent your missed payments are, the worse your score will be, typically. Bringing accounts current and continuing to pay on time will almost always have a positive impact on your credit scores.

Track Your Credit Score

When you monitor your credit score, you can intervene quickly if it drops. You can address factors that influence your score, such as high balances, late payments or too many recent hard inquiries. There are many ways to check and monitor your credit score for free, including through your current credit card issuer or bank, or through Experian.

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Where Can You Find Other Credit Education Resources

For more information on credit scores, reports and histories, be sure to check out these additional resources from Equifax:

What to Do If You’ve Been Denied Credit. Find out why lenders may deny you credit and steps you can take if you are denied.

How Can I Check Credit Scores? There are a few ways that you can check important information when it comes to your credit score.

Why Do Credit Scores Fluctuate? It’s completely normal for credit scores to fluctuate. Learn why here.

Keep Track Of Your Credit After You’ve Reached Your Goal

Pin on How to improve Credit Score

Once you’ve done the work to rebuild your credit history, you may be tempted to move on and focus on something else. While you likely won’t need to focus as much on your credit score as you used to, it’s still a good idea to keep an eye on it.

Monitoring your credit will help you spot any potential issues that could cause your credit score to drop again. It’ll also give you a heads up if someone commits identity theft, so you can address it before it gets out of hand.

With Experian’s free credit monitoring tool, you’ll get access to your FICO® Score powered by Experian data and also an updated copy of your Experian credit report. You’ll also get real-time alerts about new inquiries and accounts, suspicious activity and changes to your personal information.

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Keep Track Of Your Old Accounts

Some lenders don’t like it when customers have unused credit, in case they use it all at once and then struggle to pay it back. Closing old accounts could potentially improve your credit rating.On the other hand, by closing down a card, youre reducing the overall amount of credit available to you and then it may seem as if you need to utilise a larger percentage of your credit limit just to get by.

Lenders look at the credit limits available to you and how much you use to judge whether you can cope with new credit. If you have an overall credit limit of £1,000 and you use £250 of it, your credit utilisation is 25%. But if you cancel a card and your limit is reduced to £500, youll be using 50% of it already.Accounts that you’ve used responsibly for years is a great sign that you know how to look after your money. As a rule, you should aim to keep accounts with a long history of good repayments.If your memory needs jogging, you can find out if youve got any active credit cards or store cards by checking your credit report. Credit Reference Agencies will keep a record of closed accounts for six years before they are removed from your credit report.

Limit Your Number Of Credit Applications Or Credit Checks

Its normal and expected that you’ll apply for credit from time to time. When lenders and others ask a credit bureau for your credit report, its recorded as an inquiry. Inquiries are also known as credit checks.

If there are too many credit checks in your credit report, lenders may think that youre:

  • urgently seeking credit
  • trying to live beyond your means

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Dont Apply For New Accounts Too Often

When you apply for a new line of credit, a hard inquiry is recorded on your credit report. This type of inquiry has the potential to lower your score temporarily. A hard credit inquiry will remain on your credit report for 24 months and may impact your credit score for the first 12.

Research your likelihood of approval to ensure youre a good candidate before you apply for a new credit card. You dont want to risk lowering your score for a denied application. You should also refrain from applying for several credit cards within a short time frame or before taking out a large loan like a mortgage.

Credit scoring models do let you rate shop without a credit score penalty for certain types of loans. FICO considers multiple applications for a mortgage, auto or student loan within a designated time frame as a single hard inquiry. According to FICO, this span can vary from 14 days to 45 days. VantageScore counts all inquiries within a 14-day period as one.

Keep in mind, checking your own credit report is considered a soft inquiry and wont hurt your score. Hard inquiries and soft inquiries arent the same when it comes to credit scoring.

S To Improve Your Credit Score Right Now

How to Improve Your Credit Score

Having a solid credit score is especially helpful when interest rates are rising.

As the Federal Reserve raises short term rates to combat inflation, borrowers are facing increased costs on all kinds of debt from mortgages and personal loans to and student loans. Improving your credit score can help offset some of these increases.

The higher your credit score, the lower the interest rate youll pay and the lower your monthly payments will be. By improving your score, youll set yourself up to qualify for the best possible rate on new debts.

What does that look like in action?

Right now, a borrower with 620 credit considered a fair score would need to pay roughly 8% interest on a 30-year mortgage. On a $400,000 loan, that amounts to a $2,935 monthly payment. Someone with a much stronger score of 740 could get a rate near 7%, which would result in a monthly savings of $274 on a loan that size.

The money you save can then be used to pay off other debts, shore up your emergency savings or make needed home repairs. However, bringing your score up takes time and patience, so its best to start sooner rather than later. The following steps can help you get started.

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Make Sure Your Address Is Up To Date

Having your current address on your credit report is very important. When you move home, make sure you register to vote at your new address as soon as possible.

Councils send voter data to credit reference agencies once a month, so this can improve your score within eight weeks.

Register to vote at GOV.UKOpens in a new window

Make Sure Your Credit Reports Are Accurate

The three leading credit reporting agenciesâExperian, TransUnion and Equifaxâcollect your credit information from companies where you have open accounts. These can include banks, , retailers, auto and mortgage lenders and even utility companies. And while they work to collect accurate information, they donât always hit the mark. An FTC study found that 26% of participants had a potentially material error in one of their credit reports.

The first step when looking to improve your credit score is to ensure that all accounts and negative marks on your report are actually yours. The agencies are required by federal law to provide your credit report for free once every 12 months and do so through .

Request your reports and make sure everything is accurate. If something is amiss, you can file a dispute with the reporting agency and the bank or lender associated with the incorrect information.

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Use Experian Boost To Report Council Tax Netflix Subscriptions And Savings

In November 2020, Experian launched a new tool to help people quickly improve their credit scores.

Experian Boost uses open banking, by which you grant Experian access to your current account information.

The tool allows them to unlock previously hidden information on your salary, council tax payments, savings habits and even your subscription payment information.

Experian says that 17m people could boost their credit scores by up to 66 points by using the tool.

Find out more:Experian Boost explained

Never Miss A Repayment

Five Ways to Improve Your Credit Score Fast to Apply for a Loan

Showing that you can repay on time and stay within the credit limit you’ve been given will help convince lenders you’re a responsible borrower. If you find it challenging to consistently pay bills on time every month, consider making payments via direct debit.

Inform your lenders as soon as possible if your debts are proving difficult to handle. Its better to seek their help than to repeatedly miss loan or credit card repayments with no explanation.

If you are late with a payment or miss one, it will show up on your report within a month. One late payment on a credit card or loan can dent your score by as much as 130 points, according to Experian.

A missed payment will show on your report for six years, although its impact will lessen. If youve missed only one payment, your score could start to recover after around six months and should be fully recovered after a year.

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Rural Consumers Carry Less Debt On Average Than Non

In early 2022, the average credit card balance of rural consumers was $4,772, significantly lower than the overall average of $5,381 for all consumers. Average balances of rural consumers for most other borrowing show a similar pattern of lower-than-average balances. Auto loans were the sole exception.

Average Balances of Rural and All Consumers, 2022
Debt Type

Rural consumers have more auto loans per consumer and for higher amounts than all consumers.

What Is Considered A Good Credit Score

According to the Fair, Isaac and Company , the creator of the three-digit score used to rate your borrowing risk, the higher the number, the better your credit score. The FICO score ranges from 300-850. says a good credit score is in the 670-739 score range.

Your credit score is made up of five different factors.

5 categories that make up your credit score

  • 35% Payment history: This is a record of your payments on all accounts for the length of the account history. Think of this as a report card for your finances.
  • 30% Amounts owed: This is what makes up your credit utilization ratio. To determine your utilization ratio, take the amount of outstanding balances on each account, add them up and divide that by your total credit limit. So a credit card with a $5,000 credit line that has $3,000 in used credit would be a 60% credit utilization ratio not so good.
  • 15% Length of credit history: This considers the number of years you have been borrowing. The longer your credit history of positive payments and responsible account management, the better.
  • 10% Credit mix: This includes all types of credit, such as installment loans, revolving accounts, student loans, mortgages, etc.
  • 10% New credit: Every time you apply for a new credit card or loan, a hard inquiry is reported on your credit report.

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