How to Improve Your Credit Score and Ratings

Steps to improve your credit scores

How to Improve Your Credit Score

A credit score or rating is a number between 300 and 850 that represents a consumer’s creditworthiness. The higher the score, the better the homeowner is perceived by potential lenders. Credit rating is based on credit history—the number of open accounts, total debt, mortgage history, and other factors. Therefore, the mortgagers use these credit scores to evaluate whether borrowers will repay the loan on time. There are a few simple steps you can take to improve your credit score:

  • Opening an account
  • Reporting to the credit bureau
  • Maintaining a low balance
  • Paying bills on time

Nevertheless, it is not easy to recognize where to start. So, it’s essential to understand how scores are calculated and ways to improve credit score, whether building funds from scratch or making a balance after your credits reach lower values. Hence, you can dive into more detailed instructions based on your situation.

1. Build Your Credit File

Opening a new account related to the major credit bureaus is crucial in creating your credit file. You can’t build a good reputation as a borrower until you have an account under your name, thus owning some open and active credit accounts would be helpful.

This may include a credit loan or a guarantee card if you start or have a low credit score. More so, you can use a high-premium credit card with no annual fee if you are trying to upgrade to an established good score. Adding someone else’s credit card as an authorized user can also help if you use credit cards responsibly.

2. Don’t miss your payment

Your payment record is another important factor in determining your credit score. Therefore, long history of on-time payments can benefit borrowers to earn an ideal credit score. To do this, you need to ensure that you don’t miss a credit card payment by more than 29 days. The payments delayed by at least 30 days may be reported to the credit bureau and impact your reputation.

You can avoid missed payments by setting the automatic payments to the lowest due amount (as long as you’re sure not to overdraft your bank account). Furthermore, contact your credit card issuer to discuss solutions when you encounter problems while paying your bills.

3. Paying overdue bills

It will be helpful to provide the current bank statement if you are behind in paying your bills. Although late payments can remain on your credit report for up to 7 years, having a good reputation on all your accounts can benefit your rating. More so, it prevents delayed payments from being added to your credit history and additional late fees. 

Communicating with a credit counselor and obtaining a debt management plan (DMP) may be a good choice for those struggling with credit card debt. The advisors can negotiate lower interest rates and fees and drive card issuers to update borrowers’ credit account.

4. Pay down Revolving Account Balances 

The high revolving balance will cause extensive credit utilization and affect your score even if you don’t delay your monthly payments. Revolving accounts include credit cards, lines of credit, and maintaining a low balance on them to improve your credit scores. People with the highest credit ratings tend to keep credit utilization in the single digits.

5. Limit How Often You Apply for the New Accounts

Although you may need to open an account to create your credit history, you must set a limit on how often you apply for a loan. The submitted application will lead to strict inquiry affecting your credit history and score. Also, these queries may add up and have a combined impact on your reputation. The average age of your account will also decrease when you open a new account, which would also influence your credit points.

The average age of applications and your account is a secondary criterion, but you should be cautious about the number of applications you submitted. One exception is when you consider charges for certain loans types, such as car loans or mortgages. The credit rating model recognizes that buying interest rates is not risky and may ignore some queries if it happens within few weeks.