Tips for Improving Your Credit Score
Whether you’re one of the hundreds of thousands of Americans starting their own business, or someone who just wants to stay on top of their own personal finances, you need a good credit score. This number affects approval chances and interest rates for virtually every major financial decision in your life, from business and personal loans to different types of insurance. Here’s how you can improve your score.
Never be late when it comes to paying bills
A single missed payment can result in a 100 to 300-point drop in your credit score. Indeed, CNN Money details how payment history is the single biggest factor that can determine whether your credit score is good or not. This is why it’s important to use your credit card only up to what you can afford to pay per month. If money is tight and you’ve had to let deadlines slip, that’s the first thing you should settle. Keeping your payment history clean is the single best thing you can do to ensure good credit.
Lower your credit utilization rate
After payment history, your utilization rate is the next biggest factor that affects your credit score. This rate determines what percent of your overall limit is already being used. If your overall limit is $500 and you’ve charged $150 to your credit cards, then your overall credit utilization rate is 30%. Ideally, you should lower this to the single digits if possible. The key is to keep your limit high and your balance low. Apart from keeping your balances down by quickly paying off bills, Fox Business explains that you can also increase your limit by requesting an increase. While this might trigger a hard inquiry from your issuer, getting a higher limit could be worth the small hit that your score will take from a hard inquiry, which brings us to our next point.
Be mindful of hard credit inquiries
Hard credit inquiries happen when you ask for credit limit increases, apply for a new loan, or do anything else that gives a lender or financial institution due cause to check your credit report. This typically only does around five to ten points of damage to your score, which only lasts for 12 months. Be that as it may, Petal Card states how hard credit inquiries make up about 10% of your overall credit score. This means that you should try to avoid them as much as you can, and reserve them for instances when they’re only absolutely necessary.
Open one or two credit card accounts
Repaying student, mortgage, and car loans can only do so much to raise your credit score. If you want to significantly improve your score and keep it at a high level, the most efficient way to do this is to manage at least one credit card. Keep the above tips in mind to ensure that your credit card account improves and doesn’t further hurt your credit score. The most crucial thing about wisely managing a credit account is consistency. If you can consistently spend what you can afford to pay before the deadline, then you can slowly but surely work at increasing your score. Work towards managing at least two credit card accounts, which can raise your score faster. While attaining and maintaining a high credit score takes time and effort, the financial doors it can open for you in the future are well worth the trouble.