What To Avoid If You’re Working On Your Credit Score
When you’re actively working on your credit rating, make sure you don’t fall into some of the common booby traps that would have contributed to your poor score in the first place.
Here are a few things to avoid when you’re trying to boost your credit score.
If you feel you need a little more help to get on top of your score, consider speaking with a professional financial counsellor. Some financial advice could help you get back on the right track financially and your credit score could be improved as a result.
And if you don’t yet have your credit score, you can receive it through the free Finder app and you can keep up to date with your score as it changes. By seeing this monthly, you’ll stay committed to a new financial you.
Pay Credit Card Balances Strategically
The portion of your credit limits you’re using at any given time is called your . A good guideline: Use less than 30% of your limit on any card, and lower is better. The highest scorers use less than 7%.
You want to make sure your balance is low when the card issuer reports it to the credit bureaus, because that’s what is used in calculating your score. A simple way to do that is to pay down the balance before the billing cycle ends or to pay several times throughout the month to always keep your balance low.
Impact: Highly influential. Your credit utilization is the second-biggest factor in your credit score the biggest factor is paying on time.
Time commitment: Low to medium. Set calendar reminders to log in and make payments. You may also be able to add alerts on your credit card accounts to let you know when your balance hits a set amount.
How fast it could work: Fast. As soon as your credit card reports a lower balance to the credit bureaus, that lower utilization will be used in calculating your score.
Reduce Your Credit Ratio
The gap between the amount you owe and the limit to your credit affects your credit record. This is known as your credit utilization ratio. For example, if your available credit is R20 000 and you owe R10 000, your credit utilization ratio is 50%.
A good rule of thumb is to keep your credit utilization ratio at 30% or lower. So in the above example, paying down what you owe in order to reduce the 50% rate to 30% will boost your credit score. Paying your account before the due date also increases your score.
The credit utilization ratio is one of the primary factors in determining your credit score, along with payment history.
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Why Does A Good Credit Score Matter
A good or excellent credit score will save most people hundreds of thousands of dollars over the course of their lifetime. Someone with excellent credit gets better rates on mortgages, auto loans, and everything that involves financing. Individuals with better credit ratings are considered lower-risk borrowers, with more banks competing for their business and offering better rates, fees, and perks. Conversely, those with poor credit ratings are considered higher-risk borrowers, with fewer lenders competing for them and more businesses getting away with high annual percentage rates because of it. Additionally, a poor credit score can affect your ability to find rental housing, rent a car, and even get life insurance because your credit score affects your insurance score.
Make More Than One Payment Each Month
Although some may have enough trouble making one payment each month that theyll hardly want to bother with two, making multiple payments can have multiple positive impacts to your credit score and your pocketbook. To be clear, however, were talking paying more than youre required to each month, not simply breaking your payment in two.
This specific effects of this method vary with the type of debt, affecting installment and revolving debts in different ways. For credit cards, which are revolving debts, making multiple payments reduces the amount of interest youll be charged the next month, thanks to the way credit card interest works. In essence, each payment reduces your cards average daily balance, on which your interest fee is based.
Additionally, for both revolving and installment loans, paying more than the minimum each month will reduce the total time you spend paying off your debt. Not only does eliminating debt positively impact your credit score, but the less time you spend making payments, the few interest payments youll be required to make both of which frees up funds for paying off other debt or saving for retirement.
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Hard Hits Versus Soft Hits
Hard hits are credit checks that appear in your credit report and count toward your credit score. Anyone who views your credit report will see these inquiries.
Examples of hard hits include:
- an application for a credit card
- some rental applications
- some employment applications
Soft hits are credit checks that appear in your credit report but only you can see them. These credit checks don’t affect your credit score in any way.
Examples of soft hits include:
- requesting your own credit report
- businesses asking for your credit report to update their records about an existing account you have with them
Request A Higher Credit Limit
One key move you can make is to request a higher limit on your current card. If youre looking for ideas on how to increase credit scores, this is a good one.
The idea is to up the ceiling on purchase limit, but spend less each month so that credit utilization ratio improves. Note that this may result in a “hard inquiry” of your credit report, which could result in a brief drop of your credit rating. You may find youre on the way to your best credit score ever!
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Have A Variety Of Credit Accounts
While you should only borrow money when necessary, having a variety of credit accounts can demonstrate you can manage credit responsibly. You might have one credit card, a home mortgage and a car loan. Each type of account can benefit your credit score differently.
Loans that you repay in full can remain on your credit report for up to ten years. You can have an easier time qualifying for a similar loan in addition to having a higher credit score.
S To Improve Your Credit Score Right Now
Leslie CookKristen Bahler11 min read
A good credit score can make navigating difficult economic times a little bit easier.
Rising interest rates have made it more expensive to take out all kinds of new credit, from student and personal loans to and mortgages. But building up your credit score can offset some of these expenditures.
A high score helps you qualify for a lower rate when you take out a new loan. And the lower interest rate that comes with a high score makes saving money for your monthly payments easier and frees up cash you can use to pay down other debt. Or just save for a rainy day.
If your credit score is less-than-stellar, here are some concrete steps you can take to improve it. It may take time, so the sooner you start, the better.
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Dont Change Houses And Jobs Frequently
Lenders want evidence that youâre a stable character. They want to see you have staying power â that youâre not here one day, gone the next. Put simply, they want evidence of stability so try not to change jobs and addresses too frequently.
Looking to change your home loan? Use our home loan selector tool or call .
Keep Credit Utilization Low
Your credit utilization ratio, also known as your debt-to-credit ratio, is the amount of revolving credit you use divided by your total credit limit. Personal finance experts recommend keeping your credit utilization ratio under 30%, but its best to get it as low as possible.
Action item: Reduce your spending on credit cards and pay the bills at least twice a month to have a smaller percentage of your total credit limit outstanding at any given time. You could also ask for a limit increase, but it may not be approved if you have bad credit and are searching for how to improve your credit score.
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Keep Old Accounts Open And Deal With Delinquencies
The age-of-credit portion of your credit score looks at how long youve had your credit accounts. The older your average credit age, the more favorably you appear to lenders.
If you have old credit accounts that youre not using, dont close them. Though the credit history for those accounts would remain on your credit report, closing credit cards while you have a balance on other cards would lower your available credit and increase your credit utilization ratio. That could knock a few points off your score.
And if you have delinquent accounts, charge-offs, or collection accounts, take action to resolve them. For example, if you have an account with multiple late or missed payments, get caught up on what is past due, then work out a plan for making future payments on time. That wont erase the late payments but can raise your payment history going forward.
If you have charge-offs or collection accounts, decide whether it makes sense to either pay off those accounts in full or offer the a settlement. Newer FICO and VantageScore credit-scoring models assign less negative impact to paid collection accounts. Paying off collections or charge-offs might offer a modest score boost. Remember, negative account information can remain on your credit history for up to seven yearsand bankruptcies for 10 years.
Take Advantage Of Score
The number of accounts and the average age of your accounts are both important factors in your credit score, which can leave those with limited credit history at a disadvantage.
Experian Boost and UltraFICO are programs that allow consumers to boost a thin credit profile with other financial information.
After opting into Experian Boost, you can connect your online banking data and allow the credit bureau to add telecommunications and utility payment histories to your report. UltraFICO allows you to give permission for your banking data, like checking and savings accounts, to be considered alongside your report when calculating your score.
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Verify The Contents Of Your Credit Reports
Review each of these reports thoroughly, verifying the following details are correct on each:
- Details on payments made on time
- Debt payment history
- Balances due of accounts open currently
- Number of closed accounts
- Personally identifiable information is identical across all reports complete name, address, SSN, date of birth, etc.
Limits Your Requests For New Creditand The Hard Inquiries With Them
There are two types of inquiries into your credit history, often referred to as hard and soft inquiries. A typical soft inquiry might include you checking your own credit, giving a potential employer permission to check your credit, checks performed by financial institutions with which you already do business, and credit card companies that check your file to determine if they want to send you pre-approved credit offers. Soft inquiries will not affect your credit score.
Hard inquiries, however, can affect your credit scoreadverselyfor anywhere from a few months to two years. Hard inquiries can include applications for a new credit card, a mortgage, an auto loan, or some other form of new credit. The occasional hard inquiry is unlikely to have much of an effect. But many of them in a short period of time can damage your credit score. Banks could take it to mean that you need money because youre facing financial difficulties and are therefore a bigger risk. If you are trying to raise your credit score, avoid applying for new credit for a while.
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How To Control The Number Of Credit Checks
To control the number of credit checks in your report:
- limit the number of times you apply for credit
- get your quotes from different lenders within a two-week period when shopping around for a car or a mortgage. Your inquiries will be combined and treated as a single inquiry for your credit score.
- apply for credit only when you really need it
Make Consistent And Larger Payments
One of the best ways to improve your score is by paying your bills on time. While you can’t erase missed payments, you can give your score a boost by paying off as much of your balances as possible.
Also, ignore the whole myth that carrying a credit card balance builds credit it doesn’t. In fact, paying off all your purchases every month can avoid interest and help your credit score rise.
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Pay Your Bills On Time
Failing to pay your bills in a timely manner is one of the fastest ways to ruin your credit history because 35% of your FICO credit score stems from your payment history.
Most creditors will report a late payment that is 90 or more days past due. Once reported, your credit score could lose 100 points or more.
If you find yourself simply forgetting to make some bill payments, set up automatic payments wherever possible. Consider using personal financial software to remind you of upcoming bills and/or initiate repayments automatically.
Dispute Errors On Your Credit Report
The credit bureaus may also be reporting information that is incorrect or inaccurate.
Regardless of who is at fault, remedying errors on your credit report is a great way to quickly improve your score. Request an annual credit report from one of the three credit bureaus you can get one free credit report from each credit bureau once a year. Scan through the various accounts in your credit report and note any errors and what lender they come from.
If you find a lender error, call your lender to remedy the situation. Show the error on your credit report and ask that your lender update the information they send to the credit bureau. If the error is coming from the credit bureau, call them to dispute the report and correct your account.
It can be time-consuming to dig through your credit reports, but it will pay off. Fixing errors is a quick way to help boost your score.
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How Is A Credit Score Calculated
Multiple factors play a role in deciding your creditworthiness, which is usually indicated by your FICO score or your VantageScore. Below, well break down the factors that make up a FICO score:
|FICO Score Factor|
|Payment history||35%||Paying your bills before their due dates will keep your payment history in good shape.Missed payments and late payments are negative marks on the most important factor in your credit score.|
|Amounts owed||30%||This factor considers your credit utilization ratio, or the extent of your credit limit thats being used every month.Its best not to use all of your available credit, as it shows lenders you may struggle to make on-time payments.|
|Length of credit history||15%||The older the average age of your credit accounts, the better.Thats why you shouldnt open multiple new accounts at once.|
|New credit||10%||Having multiple hard credit inquiries around the same time could temporarily damage your credit score. Soft inquiries wont hurt your score, no matter how many occur.Hard inquiries for the same type of credit, such as auto loans, are all counted as a single hard pull if theyre done in a brief period of time.|
|10%||Having various types of credit is beneficial in the eyes of credit reporting agencies as long as you pay your bills on time.A mix such as credit card accounts, an auto loan, retail accounts and a personal loan typically wont have a negative impact unless you fail to pay on time or have a high credit utilization rate.|
Ways To Improve Your Credit Score Fast
Alison Kimberly is a freelance content writer with a Sustainable MBA, uniquely qualified to help individuals and businesses achieve the triple bottom line of environmental, social, and financial profitability.
If you already have a good credit score, or youre close to getting a good credit score, youll be eager to step up from good to very good or even to excellent. One step up in your credit score can unlock lower interest rates, better mortgage terms, and larger credit lines with better features and rewards.
Your credit score is a reflection of your financial health, and having a good credit score can make it easier to get a loan or secure financing. With the strategies outlined here and a little patience, you could increase your credit score by 100 points or more. Heres how.
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So Whats The Fastest Way To Raise Your Credit Score Up To 100 Points
The answer to that question lies within the ANSWERS to these THREE questions:
1.) What is the HIGHEST SCORING credit you can ADD to your credit reports?
2.) What is the FASTEST way to ADD this type of credit to your credit reports?
3.) What impact will this have on your overall DEBT to CREDIT ratio?
Lets get rolling!