Credit scores fluctuate as time goes on, and there is no perfect number. However, there are steps you can take to improve your score so that banks will be more confident when you’re seeking their business.
Review your credit reports
You can acquire your credit report through Equifax, Experian, and TransUnion, though you may have to pay for this service. The documents are comprehensive and will help you identify the areas you need to improve on, such as paying bills on time, covering credit card balances, exceeding your line of credit, and paying off outstanding loans.
Pay your bills
Your personal payment history is one of the most significant factors that money lenders consider before doing business with you.
Late payments remain on your file for several years. Paying your bills on time is one of the simplest but most effective steps you can take to fix your scores.
Limit your requests for new credit
In other words, reduce the number of applications you submit for large financial ventures, such as mortgage loans, additional credit cards, and car loans. Also known as "hard inquiries," frequently applying for loans can negatively affect your score, as it may appear as desperation to banks.
On the other hand, "soft inquiries," like checking your credit score, are not a detriment.
Build your credit file
Building your credit file means creating a history of credit activity. It is important to note that this process is a gradual one.
You can build your file by paying off bills, borrowing and paying off loans in a timely fashion, and making sure you hold down consistent employment. Even though employment history does not affect your score, it is another note added to your file nonetheless, and being able to present an array of favorable information about your background is never a bad thing.
Pay down revolving account balances
Revolving accounts refer to credit cards and their accompanying line of credit. Spending wisely – and in turn, making sure you don’t exceed your credit card balance – will undoubtedly benefit you down the road.
Keep credit cards open
Making purchases with a credit card is a quick way to build and boost your score, as long as you aren't overspending; this is not the case with a debit card.
If you cancel a credit card, that card's credit limit will be dropped from your file and can lower your score.
Monitor your progress
Keep organized records. Like many matters related to money, credit scores are dynamite. By keeping an eye on how your score changes, you can be proactive and make any necessary changes before they become a severe detriment to your credit history.
There are free services online to help you do this, but you can also go through any of the three credit bureaus. Equifax, Experian, and TransUnion all update your score on a month-by-month basis.
In addition to monitoring your credit report, reporting any mistakes on your credit report and your bills is another crucial facet to monitor. It is best not to allow any errors to go unnoticed for long and to request their removal as soon as possible. The sooner they’re removed, the better. Remember, fixing your credit file can take time.
Things to avoid when working on credit scores
Tip 1: Don’t apply for new credit cards. Remember, keeping your current cards open and in good status can improve your score, but applying for new cards does not have the same effect. Any accounts you open can negatively affect your score.
Tip 2: Don’t take out a loan to improve your credit mix. Loan applications are fine, but applying for multiple loans, especially in a condensed period, does not reflect well on your score. Doing so can suggest a less-than-desirable financial situation, which can harm your chances of entering business with a bank or lender in the future.
Tip 3: Avoid having no credit history. If you don’t have any credit history you cannot have a credit score, never mind a good credit score. To reiterate, building your credit history takes time, so it’s best to start when you are young. Remember, the length of your credit history makes up 15 percent of your FICO score.
Tip 4: Late or missed payments. This facet is a significant factor in FICO score calculations, coming in at 35 percent. Late or unpaid payments are yet another indicator of irresponsible behavior.
How long does it take to rebuild a credit score?
Repairing your credit score is a gradual and lengthy process and depends on several things, including how many mistakes you must fix and the severity of those mistakes.
Nevertheless, it is not uncommon for people to try and rebuild their scores to achieve financial goals like buying a house. It takes approximately three to six months to mend most problems fully.
How do I get my credit score up to 100 points in one month?
Once again, you can do this by paying bills on time, having various credit types like student loans and car loans, and having more than one credit card in your name.
How are credit scores calculated?
FICO scores indicate whether an individual will be able to pay back a loan. VantageScore indicates the likelihood of an individual paying their bills on time. Each model draws from statistics gathered from the major credit bureaus.
The general breakdown of how FICO determines your credit score is as follows:
35 percent: Your payment history is the single, most significant factor in score computations.
30 percent: Used credit versus available credit; so, the amount of credit you’re currently using coupled with the total amount of credit available.
15 percent: Credit history.
10 percent: Records, specifically any notes on risky or questionable financial behavior such as filing for bankruptcy.
10 percent: Inquiries. Whenever someone accesses your credit file, be it you or a potential lender, it is recorded. Again, only hard inquiries will impact your score.
Building your credit history is a worthwhile endeavor but one that requires patience. Making purchases responsibly and refraining from overspending can help you generate a desirable score as well as clean up an existing score. You must be able to handle your money confidently and wisely.
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