Are you planning to buy your first home or dream car in the next few months? If yes, you’ll likely need to apply for a loan to make the purchase possible. Your credit score plays an essential part in the loan approval process. The higher the score, the easier it will be for you to qualify for new loans, new lines of credit or even lower available interest rates.
Wondering how to improve your credit score? Though several factors go into raising your credit score, paying your bills on time, checking your credit report regularly and paying down debt are a few simple and essential tips that can help you build your credit. Moreover, you could potentially improve your score by 100 points or more by fixing credit report errors, increasing credit limits and paying your credit bills more than once a month.
So, if you’re serious about boosting your credit score to set yourself up for long-term financial success, we’ve got you covered. However, before diving into details, let’s begin with the basics.
Understanding The Importance Of A Good Credit Score
A credit score is a three-digit number between 300 and 850, with 300 being the lowest and 850 being the max credit score. It is generally calculated using the information in your credit report, including the length of your credit history, payment history and outstanding balances. Your credit score helps creditors or lenders identify your creditworthiness.
So, what is a good credit score? A good credit score means easy access to better credit cards, lower interest rates, better loan terms and more rental options. Your credit score is one of the essential markers lenders use to determine your financial status. The higher your credit score, the more capable you are in the eyes of lenders to manage debts or pay back your loans.
In addition, maintaining a good credit score unlocks endless opportunities for borrowers. For instance, a high credit score can lead to a lower interest rate on a loan, mortgage, credit card or other financial product. Good credit scores can also affect what you will pay for insurance or whether or not a landlord will rent you an apartment. Some potential employers even review a candidate’s credit score before extending a job offer.
How To Raise Your Credit Score
Now that you understand the importance of having a good credit score, you may be looking for strategies to raise yours. Though improving your credit score is not an overnight game, there are several tips that you can consider following to increase your score in the long run. Some of the simple and popular ones include the following:
Pay Your Bills On Time
Paying your debts on time is one of the most significant factors in raising your credit score; even one late payment can quickly drop it. To avoid missing credit card payments or other bills, consider putting them on autopay or registering for billing alerts to get a reminder before the due date.
Dispute Errors On Your Credit Report
An error or fraud on your credit report can pull down your score immediately. You can review your credit report with all three national credit bureaus (Experian, Equifax and TransUnion) for incorrect account details, missing information or evidence of identity theft. If you discover any error or fraud, start a dispute to help remove it from your report as quickly as possible.
Lower Your Credit Utilization
Credit card utilization is another important factor that impacts credit scores. A general rule of thumb is to use less than 30% of your credit limits. For example, if you have a credit card with a $1,000 limit, always stay at or below a $300 outstanding balance. You can see a positive effect on your credit score in as little as 30 days by keeping your credit utilization ratio below 30%.
The best way to minimize the utilization rate is to ask for higher credit limits. When you have higher limits and the spending amount remains the same, your credit utilization ratio lowers, which can increase your score.
Limit New Credit Applications
When you apply for a new credit card or an auto loan, the lender or issuer asks permission to check your credit report to determine your eligibility. This is generally called a hard inquiry, and it can negatively affect your overall score.
The impact of hard inquiries is usually short-lived, but too many in a short period can add up and hurt your credit score. Therefore, you must think wisely before applying for new credit applications, as they can decrease the average age of your credit history. In addition, make sure to do your research and submit applications only for those cards or loans you need.
Consider Using A Secured Credit Card
A secured credit card is another amazing tool that can help you build your score. If you want to build your credit history or repair a low credit score, consider using a secured credit card. Secured cards are backed by a cash deposit, generally used as your credit limit. You can use a secured card like a standard card to make monthly payments. Each on-time payment can help boost your credit score. Just confirm that the secured credit card you pick reports all payments to credit bureaus.
Build A Diverse And Healthy Credit Mix
A diverse credit mix, including credit cards, car loans and mortgages, indicates healthy money management. Remember that credit scoring systems and lenders react positively to borrowers who prove they can handle multiple types of credit. That’s why experts tell you to keep all unused credit cards, as canceling them can affect your credit history or diminish a well-rounded credit mix.
Overall, having a diverse credit portfolio can help you establish credit. However, it doesn’t mean you should take on a new type of loan you don’t truly need. Always do your calculations and apply only for credit that makes sense within your financial plan and can benefit your score in the long run.
Monitor Your Credit Report Regularly
Credit monitoring service is an easy and quick way to track all the changes in your credit score over time. With regular monitoring, you can address all factors that influence credit scores, such as late payments, high balances or too many hard inquiries. It will help you take immediate action whenever you observe any drop in your score. In addition, regular monitoring of credit reports can also help in preventing card fraud or identity theft.
Credit Score Range Chart
People make countless financial mistakes that lead to unintentional damage to their credit scores. Remember, there’s no one-size-fits-all solution to increase your credit; it takes constant effort and patience. But, before establishing your credit score, you must know what a good credit score is and how to calculate it. Though multiple credit scoring systems exist in the market, FICO and VantageScore are the most common. Both systems use ranking charts to assess the creditworthiness of a borrower. According to FICO, your score may fall into the five following categories:
- 800-850: Excellent
- 740-799: Very Good
- 670-739: Good
- 580-669: Fair
- 579-300: Poor
This credit score range chart shows that credit scores usually range between 300 and 850, and any score around 670 or above can be considered a good credit score. There are endless benefits to having positive credit behavior. For example, banks are more likely to trust and approve credit card or loan applications of borrowers with good credit. People with high credit scores are often offered better loan terms and lower interest rates.
In addition, good credit scores can make your life more affordable. However, building a high credit score isn’t magic. Every individual needs to learn and practice good financial habits to establish credit.
Does Checking Credit Score Lower It?
Simply put, no. Though multiple small mistakes can kill your credit, checking your score will surely not harm it. There are many misconceptions about it, but the reality is that it’s a great idea to check your score as often as you want. When you check your credit score, you request a copy of your credit report, a soft inquiry or self-check. No matter how often you ask for copies of your credit reports, soft inquiries have zero impact on your overall score. Also, they are not visible to potential issuers who may review your credit report; only you can see them.
Alternatively, there are hard inquiries or hard pulls. They typically occur when creditors or lenders check your credit after you apply for a new loan or a new line of credit to make the lending decision. Hard inquiries help creditors analyze how frequently you apply for credit. Too many hard inquiries within a short period can impact your credit score negatively and may reflect on your credit report for up to two years.
Overall, soft inquiries won’t affect your credit rating. Since they are safe, you should go for soft checks regularly. Soft inquiries play a significant part if you’re working on building or rebuilding your credit score. Additionally, checking your report before applying for new credit is always a good idea to avoid complications, whether a credit card, auto loan or mortgage. Frequent soft inquiries ensure your credit report is error-free, leading to hassle-free credit or loan approval processes.
Conclusion
Whether you’re planning to purchase a home or a new car, raising your credit score should be your ultimate goal. While there are several actions you can take to boost your score, there is no overnight solution. Instead of trying to repair a ding to your credit score quickly, focus on following responsible credit habits, including paying your bills on time and lowering your credit utilization rate, to raise your score.
These credit habits will not just help you if the unexpected comes up but also help you set yourself up for long-term financial success. Remember, seeing a noticeable impact on your credit may take several weeks or even months. But the sooner you start working on raising your score, the sooner you will see positive results.
How To Raise Credit Score FAQs
How Can I Raise My Credit Score Quickly?
Some quick and simple strategies for raising your credit score include increasing your credit limit, making on-time payments, monitoring your credit report for fraud or errors and avoiding unnecessary debt.
Can I Ever Rebuild My Credit Score?
Yes, you can recover from bad credit. Remember, several things, including your current score and credit history, play a significant role in deciding how long it will take to rebuild your credit. But the good part is that most negative factors won’t have a lasting impact on your credit. If you’re serious about rebuilding your credit score, you should focus on forming a healthy financial routine, as it can help you improve your score in the long run.
How Long Will It Take To Boost My Credit Score By 100 Points?
It is tough to boost your credit score by 100 points overnight. Depending on your unique financial habits, it might take a few days, months or even years to increase your score by 100 points. This timespan may vary based on several factors, such as your current credit score or efforts you make to boost your financial health. You need to have a proper plan if you’re stepping into the process of increasing your creditworthiness. Always start by checking your credit report, as it can help you identify credit errors you have been making and the areas in which you need improvement.
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