Credit Score is important to get a new credit card or take a loan or buy a house or a car and hence we have brought you tips to improve your credit score.
History has a big role to play in the present and the future. The same applies to your credit score. If you have a great one, then it’s easy to open a new credit card or buy a house or a car. Lenders tend to be nicer to you when you boost a good credit score. It shows that you know how to handle money responsibly.
But, if you are one of those who doesn’t have an exactly sparkling score, then worry not. This is the place to be. You can adopt certain measures to get into a good credit range. However, this shall require patience from you.
Let’s start at the beginning.
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Calculation of credit score
There are five factors that affect your credit score. These are payment history, credit utilization, length of credit history, new credit lines, and credit mix. You need to be aware of which ones out of these five take precedence in your personal credit management. That way, you can see what needs to be focussed upon the most.
How to tell if your credit score is good or not
FICO (Fair Issac Corporation) has a credit score limit of 300 to 850. A “good” score is anything above 670. If you are one of those chosen ones whose score surpasses 740, that’s considered an “excellent” credit score.
With all this being said, let’s start with all you can do to improve your credit score.
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How to improve your credit score
Making on-time payments over a long period of time
Payment history is arguably the most important factor when it comes to the overall credit score, accounting for about 35% of the entire score. It’s like your work experience. If you are known to do good work, anybody would hire you. So you need to make on-time payments consistently. Even if you are careless about a single payment, your score is bound to hit a substantial hit. So make sure you take this seriously.
Once the credit score drops, then you are back to square one, or even further down the road. Use autopayments or automated reminders to help you maintain consistency.
Keeping credit utilization down
After payment history comes credit utilization, which is responsible for about 30% of the credit score. To maintain a great score, you need to keep your credit utilization as low as possible. Credit utilization is given by dividing your total balances by the current credit limit.
So how do you go about managing your credit utilization? To keep it as low as possible, you need to make sure you pay off your credit card in full each month. If it is absolutely necessary to have a balance, keep the utilization below 30%. By doing this, you show that you are not a financial risk to lenders.
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Opening a secured card
In case of limited credit history and a very low score, a great option would be to open a secured card. This type of card doesn’t require a minimum credit score to be approved. The credit limit in this case is determined by the down payment you put on the card. This way, you can’t be a liability to lenders, and yet you have chances to improve your credit. Make on-time payments and keep the balances low. This will help you to eventually become eligible for an unsecured card.
Don’t open too many new accounts together
There’s a hard inquiry pulled on your credit report when you apply for a new line of credit. One or two hard inquiries are okay, but if you start to have too many of them and that too within a short interval, then your credit score comes under threat. Lenders may be alarmed by seeing you borrow more than you can afford. Always keep in mind the chances of approval when applying, or apply only in cases of pre-approval.
Keep your credit accounts accurate
Keep an eye on your credit score. This really helps in assessing where you stand with regard to your score. You can see where the most errors occur if any, and how they can be rectified. Making sure your report is accurate means keeping an eagle eye out for potential errors. If something goes wrong, you could file a dispute. This is an important step towards improving your credit score.
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Summary
- Maintaining your credit score is more important than you think. This requires a combination of efforts to a variety of factors.
- Make consistent on-time payments and never miss a single payment.
- Remember to keep your credit utilization as low as possible.
- Apply for a secured card.
- Don’t open many new accounts at once.
- Keep an eye on your credit accounts to make sure it’s accurate.
- A combination of these efforts will result in a great boost to your credit score that will lead to an approval of a secured card.
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