A credit score is a 3 digit number, which lenders use to help them decide the likelihood of the borrower repaying a loan on time. Having good credit is an important factor in a person’s financial life, which determines loan and credit card eligibility. People with better credit often have lower interest rates, better car insurance rates, higher credit limits, and are usually more quickly approved when it comes to renting a house or apartment. A bad score is typically considered anything lower than 620 and an average score is considered anything above 720. There is no quick way to improve a person’s credit, but there are several steps a person can take to repair their score. Even if you’re a person with excellent credit, it’s always a good idea to keep building.
In order for a person to improve or repair their score, they first have to understand how their score is calculated. Most people have dozens, if not hundreds, of credit scores, which is a mathematical algorithm based on a person’s credit history. It’s fairly common for a person’s score to go up or down depending on the scoring method, which will typically take into account loan history, credit card debt, revolving credit being used, and how long the account has been open. Here are some ways to improve a person’s score by as many as 100 points.
5 Ways to Help Improve your Credit Score
- Dispute Credit report Errors
Before a person automatically accepts their score, they should carefully review their credit report and dispute any errors or inaccuracies. Oftentimes, a person’s credit report will contain inaccuracies, which are usually caused by human error and can be easily resolved. Most credit agencies such as TransUnion, Equifax, and Experian will provide at least one free credit report every 12 months. A person should always remember to check their credit report for mistakes such as payments marked late, along with outdated information.
- Pay Your Bills on Time
The best way to maintain excellent credit is by paying bills on time, which includes credit card bills and loans such as auto loans, student loans, along with rent and utilities. When you fail to pay bills on time, even if you’re only a few days late, it can have a negative impact on your score. The FICO score is used by many lenders to determine a person’s eligibility status, which is considered a predictor of future performance and determines a person’s reliability when it comes to making payments on time. Late and missed payments are considered the biggest contributor and have the greatest influence on a person’s credit, which makes up 35% of a person’s score. Even if a person is only a few days late, delinquent payments can significantly impact their FICO score. The impact of previously missed or late payments on your score will gradually fade, which will have less impact than more recent payments.
- Pay off Debt and Keep Credit Card Balances Low
Another great way to maintain good credit is by reducing the amount of debt you owe. Credit utilization is the balance of the debt owed, which contributes 30% to a person’s overall score. Outstanding debt can significantly impact a person’s score; luckily there are many steps you can take to repair your score such as making small payments and keeping low balances on credit cards. It’s also recommended to keep unused credit cards open and not to open new credit cards as a way to increase your available credit, which usually will backfire and will actually lower a person’s score.
- Become an Authorized User
Becoming an authorized user on someone else’s credit card is a great way to improve your score. This is a common strategy used to quickly improve a person’s score, which is only effective if the primary user has a history of making payments on time. For a person with no credit or a thin credit file, becoming an authorized user helps them establish a line of credit. Authorized users have the same benefits as the primary user, whether the authorized user is using the card to make purchases or simply listed as an authorized user, it will have the same effect on the credit score.
- Get Credit for Making Utility and Cell Phone Payments
Another way to boost a person’s score is by paying their utility and cell phone bill on time, which can boost a person’s score by 10 points. Although, utility and cell phone bills aren’t typically used to determine a person’s score. A person can now use services such as Experian Boost, which verifies positive payment history and adds it to your credit file.