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 some steps anyone can follow to improve their credit score. Typically, people must begin with the two most significant factors in determining a good credit rating.
- Your payment history: Paying bills on time is necessary for an exceptional credit score.
- Your credit utilization rate: It’s essential to keep your credit card balance as low as possible. Also, compare your card balance to your credit limit—reflected in your credit utilization rate or BTL (balance-to-limit) ratio.
Steps to Help Improve Your Credit Score
1) Update any past-due accounts
If you have overdue accounts, such as a collection or checking account, updating those accounts is the first step in rehabilitating your credit rating. Paying off all debts may not improve all of your credit scores. However, getting caught up with a delinquent account will prevent any additional installments from being noticed.
2) Decrease in the balance of revolving accounts
The credit usage is calculated by adding up all credit card balance and dividing it by the sum of all credit card limits. The credit utilization above 30% will begin to plummet your score, and those with the best credit rating tend to keep debts below 10%. If possible, try to pay off your credit card balance in full each month.
3) Apply for a loan only when necessary
While the inquiries have minimal impact on your credit rating, applying for a loan multiple times in a short period can put you at greater risk of not acquiring an ideal mortgage.
4) Check Your Credit Report Regularly
If you attempt to boost your credit rating as soon as possible, request your credit report documents from lenders and read them carefully to ensure that all information is accurate and up-to-date.
When you intend to make a major purchase soon, request your credit report at least two to five months before applying for a loan. This will give you enough time to resolve any issues—specified in your credit report before processing the application.
The Bottom Line
Your credit rating is a number that can save you or cost you a lot of cash in your life. The exceptional credit scores can lead to lower interest rates, which means you’ll spend less for any line of credit you receive.