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6 Easy Steps To Improve Your Credit Score

I am an investor who has turned my life around by getting out of debt, reading books and taking courses on financial education.

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If you have a low credit score, it can affect your ability to borrow money for many things like renting an apartment, buying a car, getting approved for your dream home, and even getting approved for student loans or a job.

In a nutshell, a good credit score can help you take advantage of great deals, while a bad credit score will cost you money.

For example, a five-year auto loan with a low credit score may cost you thousands of dollars more than a similar loan with a high credit score.

As a result, it's important to keep your credit score high.

But what is a credit score exactly and what can you do to improve it?

What Is A Credit Score?

Credit score is a key indicator of a person's creditworthiness, and those with a high credit score have the opportunity to qualify for a more favorable loan and lower interest rates.

A credit score is calculated based on the information in your credit report and by taking into account information about your debt-to-income ratio, payment history, number of hard inquiries and many other factors.

A Credit Score can be used by lenders to determine your eligibility for loans, mortgages, and other types of financial arrangements.

A credit score can also be used to determine interest rates on loans, or to evaluate an individual's ability to repay an installment loan.

Credit score range from 300 to 850 and can be increased by paying off debt, having a good payment history, improving the quality of your credit report, etc.

A good credit rating is not just about how much money you have in the bank. It is also about how well you manage your finances, how much debt you carry, how many late payments you make, and how often you pay your bills on time.

The best way for you to improve your credit rating is by making sure that all of these factors are in place.

You can increase your chances of getting approved for a loan by following several simple steps as outlined below.

Lenders are after good credit scores

Lenders are after good credit scores

Step 1. Make Payments On Time.

Many people have bad personal finance habits that can negatively impact their credit score. Making payments on time will help increase your credit rating, which will make it easier to get more favorable rates from lenders.

Consider that just one late payment can drop your credit score by up to 110 points. And as the payment reaches sixty or ninety days past due, the damage increases even more. It can take upwards of 18 months for your score to recover.

Setting up automatic drafts or calendar reminders can help you remember due dates so that you're never late.

Step 2. Keep Your Debts Under Control.

Many people have a debt they are struggling with, whether it's credit card debt, student loans or even mortgage debt.

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If you have major credit card debt, it can really affect your score in a negative way, because it can indicate that you may be struggling financially.

One way of increasing your credit score is to work on paying off your debt. This will raise your credit rating and improve your chances of getting a better interest rate when you borrow money in the future.

It is vital to prioritize your debt payments based on your overall expenses. You must ensure that you're covering your essential living costs and don't break your monthly budget while focusing on getting rid of debt.

Step 3. Keep Your Credit Card Balances Low

Credit cards can be a helpful way to carry around money and earn cash rewards. However, it is important to be aware of the dangers that lurk in the credit card world.

One way to increase your credit score is by keeping your revolving balance low and only having a few open accounts at a time.

Step 4. Maintain Your Credit Utilization Ratio Below 30 Percent

The credit utilization ratio is a measure of your ability to manage your credit while paying down balances on your loans.

Credit utilization ratio is the amount of outstanding credit you have divided by your credit limit. This means that if your credit limit is $12,000 and you have a balance of $1,800 on your card, your utilization ratio would be 15%, which is GOOD.

As you pay down balances, the ratio decreases.

When this ratio increases instead, it's an indicator that you may be overextending yourself and could be in danger of defaulting on these loans.

One way to lower your credit utilization ratio is to increase your credit limit. Most credit card issuers offer the option to apply online for an increased credit line, provided you meet a few requirements.

Generally, the best time to get a credit limit increase is when you've received a raise or another increase in your income. This will help you demonstrate your ability to pay your bills on time, and will improve your credit score.

However, if you want to get a credit limit increase, you should be aware that it will also result in a hard inquiry on your credit report. While hard inquiries usually do not have a major impact on your credit score, requesting a credit limit increase may affect it.

As a general rule, try to keep your credit utilization under 30%. This is the rule of thumb from the Consumer Financial Protection Bureau.

Step 5. Don't Open Too Many Accounts

While it might seem like you're doing the right thing, the reality is that having multiple accounts could actually hurt your credit rating.

As tempting as it may be to obtain more credit cards than you need, consider that your credit score will be affected by the sheer number of new accounts you have opened especially within a short period of time.

This can be interpreted by credit scoring models as a sign of new debt plans, which are generally seen as a higher risk for lenders.

On top of this, each application will create a hard inquiry on your credit report. This hard inquiry will lower your score by 5 to 10 points. Fortunately, your score will bounce back a few months after each inquiry.

Step 6. Check Your Credit Score Regularly

Checking your credit score regularly, at least once every six months, is important for many reasons.

It can be used as a way of monitoring your financial situation, it can provide valuable insights into how you're progressing in life and it's also a good idea to monitor for fraud or identity theft.

Ask for an annual free credit report from the three major credit bureaus (Equifax, Experian, TransUnion) and review it regularly to make sure there is no negative information about you in their database.

If you're concerned that your credit score is inaccurate, contact the consumer reporting agency. These organizations are required to investigate inaccuracies and forward relevant data to the organization that provided the information.

Keeping your payment history on track can be a key component to improving your credit score.

Keeping your payment history on track can be a key component to improving your credit score.

Conclusion

As seen, credit scores are an important factor in our daily lives. They influence the way we live and make decisions such as whether to rent or buy a home, get a credit card, or even get a loan.

If your credit score is low, there are many steps you can take today to improve it and increase your chances of getting approved for loans and other financial products.

You should aim for a credit score of at least 750, to make sure that you qualify for the best deals. Just remember to make on-time payments, and it will be easier to get the best deals.

Having a high credit score will lower your interest rates and processing fees, and you'll also be eligible for the best credit card and loan rates. Your high score will also diminish the impact of any mistakes you've made in the past.

This article is meant to help people who are looking for ways to improve their financial situation and increase their credit score.

It is easy to feel overwhelmed when it comes to finances, but these few simple steps mentioned, can help you get back on track.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

© 2022 Alex Farris

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