Having a good credit score is important for achieving financial stability and reaching your financial goals. Your credit score can impact your ability to obtain loans, credit cards, and even rental agreements. However, if you have a less-than-perfect credit score, you may wonder how you can make the situation better. Fortunately, there are several steps you can take to boost your credit score over time. Let’s take a closer look at what you can do.
What Is A Credit Score?
A credit score is a three-digit representation of a person’s creditworthiness. This score consists of several factors and is calculated based on information from an individual’s credit report. The major traits that affect your credit score are your payment history, credit utilization, length of credit history, and credit mix.
Credit scores typically range from 300 to 850, with higher scores indicating a better credit history. Each of the three major credit bureaus has its own representation of a credit score scale. Here’s a table with a comparison:
| Type of Credit | Equifax | Experian | TransUnion |
|---|---|---|---|
| Very Poor | – | – | 300-600 |
| Poor | 300-579 | 300-579 | 601-660 |
| Fair | 580-669 | 580-669 | 661-720 |
| Good | 670-739 | 670-739 | 721-780 |
| Very Good | 740-799 | 740-799 | – |
| Excellent | 800-850 | 800-850 | 781-850 |
As you can see, a scaring model can vary, so it’s important to know which credit bureau scale an institution uses to estimate your rating.
Why Is Your Credit Score Important?
Your credit score is an important factor when it comes to financial decisions, such as getting approved for a loan or credit card. But even if you think you want to live your life debt-free, your credit score can affect the regular spheres of your life too. It can be an important factor when you’re going to rent an apartment or even get a job associated with finances.
The higher the credit score you have, the lower your interest rates on a loan you can get. Additionally, you’re considered a reliable person, so a landlord can offer you better renting terms. On the contrary, a low credit score indicates some current or past financial problems. Thus, financial institutions may reject you for a loan or offer higher interest rates as protection from losses.
7 Ways to Boost Your Credit Score
Here are a few steps you can take right now to get a great result in the future:
1. Pay Bills On Time
Payment history is one of the most important factors (35%) in determining your credit score. Thus, you need to prioritize paying your bills in time to prevent credit score drops and improve it over some time. One of the best ways to pay on time is by setting up automatic payments. This way, you will avoid random spending that will lead to late payments.
2. Keep Credit Card Balances Low
By doing this, you can maintain a good credit utilization ratio. This ratio represents the amount of credit you’re using compared to your credit limit. Keeping it low will show that you’re good at managing your finances and have a stable financial situation.
3. Don’t Close Unused Credit Cards
Closing a credit card account may seem like a good idea to avoid temptation. But in fact, it can hurt your credit score. This is because it may affect your credit mix, credit utilization, and the length of your credit history. However, if a card has high annual fees, it may be safe to close it.
4. Limit New Credit Applications
Each time you apply for new credit, a lender performs a hard credit inquiry to access your credit report details. Too many inquiries in a short period of time can lower your credit score. Additionally, it can show that you’re in a hard financial situation, and it’s not safe to lend you money.
5. Review Your Credit Reports
Everyone makes mistakes, even the credit bureaus. And errors on your credit report can negatively impact your credit score. Review your credit reports from all three credit bureaus to ensure accuracy. You’re allowed to make one free check annually.
6. Build a Credit History
If you have a limited credit history, consider some options that will help you build it over some time. You can apply for a credit-builder loan, get a secured credit card, or become an authorized user on a friend or family member’s credit card.
7. Seek Professional Help
If you’re struggling with debt or need help improving your credit score, consider turning to a financial advisor or credit counselor. They can help you develop a step-by-step plan that will help you boost your credit and improve your financial situation.
How Long Does It Take to Improve a Credit Score?
Unfortunately, improving a credit score is usually not an overnight process. It takes time and consistent effort. While some changes, such as paying bills on time or reducing credit card balances, can have an immediate impact, other changes, such as building a longer credit history, may take several months or even years. It’s important to be patient and stay committed to your goal. By following the tips above and staying disciplined with your finances, you can boost your credit score and open up opportunities for better financing options.