Whether you’re studying, working, or applying for your first car, you may recently realize that knowing your credit score and improving it is an important part of “adulting.” Unfortunately, your credit score dramatically affects how much money you can access and how easily you will be approved for a home loan or personal loan. It may also affect your ability to rent an apartment or apply for a scholarship.
But if you’ve learned your credit score isn’t what it should be, you may wonder how to improve it. Today, I will discuss 7 ways to improve your credit score and why having a good credit score matters. So, stick around to learn everything you should know about your credit score.
Why Does a Good Credit Score Matter?
A good credit score is crucial for any adult, even if it is something you often only learn about when you become one. Your credit score is a sequence of 3 numbers that informs others of your financial well-being. For example, creditors use your credit score to determine how high a risk you are when lending you money.
All your credit is used to calculate your credit score, including credit card debt, clothing accounts, student loans, and more. Creditors use your credit score to determine if you can commit to the repayments of the loan. They also use your credit score to calculate the interest rate on the money you borrow. The better your credit score, the lower your interest rate.
Therefore, having a good credit score is crucial for determining how much money you can borrow and how much money you must repay. However, if you’ve recently checked on your credit score and realized it isn’t as good as it should be, you may wonder how to salvage the situation. Fortunately, improving your credit score is relatively easy.
If you are interested to learn more about why a credit score is important, watch this video by Deserve Cards: Why a Credit Score is Important.
7 Ways to Improve Your Credit Score
When it comes to your credit score, maintenance is key. You’d be surprised to learn how easy it is to decrease your credit score, but improving it takes much longer. Therefore, maintaining a good credit score will help you manage your finances, get access to loans and credit lines, and borrow money at a lower interest rate.
And while it takes some time to improve your credit score, it is by no means impossible. So, here are 8 ways to improve your credit score and ensure you get the best possible interest rates when borrowing money in the future.
1. Don’t Miss Payments
The best way to ensure you have a stable credit score is to ensure you get all the payments on your debt. Many credit score tracking apps show your history of debt repayments. And missing a payment even once can decrease your credit score significantly. This increases your risk and leads to creditors being more resistant to loan you money or increase your line of credit.
Therefore, you must be considerate when applying for a loan or credit card. Suppose you cannot commit to paying the minimum monthly repayments on the credit card. In that case, you might reconsider whether you truly need the money. Missed payments are one of the easiest ways to damage your credit score, and it might take months to improve your credit score once it has dropped.
2. Pay Off Any Past-Due Accounts
If you’ve already missed a payment, your first priority should be to pay off any past-due accounts as soon as possible. The faster you regain control of your debt, the easier it will be to improve and keep your credit score stable. This is also why I recommend paying back more than the minimum installment every month, as it helps decrease the minimum installment.
Then, if you have a cash flow problem for one month, you won’t have such a big installment to repay. Paying off any past-due accounts also puts creditors at ease that you are, in fact, capable of repaying your debt and that you aren’t a risk when borrowing money, which makes them more likely to extend your line of credit when needed.
3. Be Mindful When Applying for New Accounts
When you apply for a new credit account, the bank or creditors will run a credit check against you. Having too many credit checks against you can also decrease your credit score. But, if you only apply for credit when you really need it, and you monitor the number of credit cards and credit lines you have, you can help to improve your credit score.
Limiting the amount of credit, you have also helps you manage your money better, reduces the chances of failing a repayment, and further decreases your credit score. Not having too many open credit accounts also improves your credit score by making you seem more financially stable.
4. Stay on Top of Revolving Account Payments
High credit utilization will negatively affect your credit score even when you aren’t behind on your payments. Suppose you use almost all your credit every month. In that case, creditors will consider this a threat, as you seem to require more of the credit available to you, even when you can repay it.
Most credit consultants advise keeping your credit utilization below 30%, preferably in the single digits, as this ensures creditors that you can manage your credit. Of course, this isn’t always possible, especially in times of need. Fortunately, you can employ the other methods listed in this article to help improve your credit score even when you cannot lower its utilization.
5. Review Your Credit Reports
Reviewing your credit reports can also help you improve your credit score as it allows you to monitor your progress. By checking your credit reports, you can see how much money you owe, how many credit lines you currently have, and how creditors will see your report when they look at it.
You can also see whether your credit score is trending up or down, which helps you manage your credit more effectively. Furthermore, credit reports often include tips and information to further improve your credit score, which allows you to pay off your debt and improve your credit score even faster.
6. Build Your Credit Score Profile
While you should be sensible when applying for a credit score, you also need to focus on building a positive credit score. Building your credit score by applying for some line of credit and repaying the debt as quickly as possible is one way to ensure you have a good credit score and enables you to apply for a loan or credit line when needed.
While you may think that you don’t need a credit score, you’ll undoubtedly need one when you want to buy a house, a car, or any other large objects that require a loan from the bank. Having a credit line isn’t a bad thing as long as you know how to manage it. If you manage it well, a credit line can grant you access to more funds when needed.
If you want to learn more about building a credit score profile, watch this video by Real Estate Is Life: How To Start Building Your Credit Score With No Credit History.
7. Apply for Sensible Credit Accounts
People often advise applying for credit accounts, such as clothing accounts, before trying to obtain a credit card. Clothing accounts are an easy way to start your credit line, as they are usually easy to get, and you can easily manage your spending. However, be mindful when applying for a clothing account, as it will only benefit you if you actually use it.
If you don’t utilize the clothing account, you won’t gain any benefit from it. Instead, you’ll have an inactive account, which is also bad for your credit score. So, applying for a sensible credit account will help you improve your credit score.
Frequently Asked Questions
Since your credit score is such an important part of your financial well-being, learning about how your credit score works and how you can improve it should be one of your priorities. Of course, it’s only natural that you will have more questions about the topic. So, to help you gain more information, here are 4 frequently asked questions about improving your credit score and their answers.
How Can I Track My Credit Score?
There are many Apps available for tracking your credit score. Some Apps, like ClearScore, are free to use. You can track your credit score and progress on these Apps. Many of them also share information and tips on how to improve your credit score and keep it stable. Furthermore, you can learn more about credit scores in general by taking some of the free courses the Apps provide.
How Long Does it Take to Improve My Credit Score?
The great news about your credit score is that you can improve it rather quickly. You can see results within 30 to 45 days, and if you use the tips I shared above, you can keep your score up and stable indefinitely.
How Are Credit Scores Calculated?
Scoring algorithms are used to determine your credit score based on your area, credit profile, and general statistics. Creditors will also use these computer algorithms to determine your risk and interest rate when applying for credit.
What is the Fastest Way to Improve My Credit Score?
There is no instant solution to improving your credit score. Instead, you can improve it gradually with the methods shared in this article. Employing these methods can help improve your credit score without too much effort, and you will see results fast enough. Once you have improved your credit score, you can focus on maintaining it.
Having a good credit score is crucial if you ever want to apply for a credit account, home loan, or personal loan. You can improve your credit score relatively quickly by following the tips shared in this article, including paying overdue accounts, not missing a payment, and monitoring the balance and health of your score. These tips will help you manage your credit score and keep it well enough to apply for credit in the future.
Thank you for reading this article! If you enjoyed it, be sure to check out our other articles to help you manage your financial situation and live a frugal life.
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