Top Ways To Improve Your Credit Score
Are you looking for ways to improve your credit score? Reducing how much debt you owe, keeping your payment history clean, leaving old debt on your report, a low credit-utilization ratio, and clearing any collection accounts are some top ways to improve your credit score. If you find that lenders aren’t approving your credit card or loan requests, or you aren’t getting favorable interest rates, then your credit score probably needs some improvement. Building up a good credit score, however, isn’t an overnight fix and requires you to responsibly manage your credit over time. The first step in improving your credit score is learning where your score falls:
Ways to Improve Your Credit Score
Although trying to fix a poor credit score or raising it after a poor entry on your credit report takes a lot of financial discipline and patience, you can still achieve the desired results by using tried and tested ways to improve your credit score. Below is our list of top ways which borrowers can use to improve their credit score. It’s a combination of practical tips from industry experts like Experian – one of the main credit reporting agencies in the United States – and FICOScores (the credit scoring model used by 90% of lenders in the United States)
Reduce How Much Debt You Owe
High outstanding debt is bad for your credit score and it’s advisable to pay off as much of it as you can. Reducing how much debt you owe is a smart way of coming up with a payment plan that allows you to allocate most of your debt-repayment budget towards debts with the highest interest first. Not sure how much debt you have? Check your credit score first:
“A good way to improve your credit score is to eliminate nuisance balances,” offers John Ulzheimer, a credit expert formerly with FICO and Equifax. These are small balances that borrowers usually have on multiple credit cards. The reason this strategy works is that one of the items borrowers score for is how many credit cards in their name have outstanding balances, Ulzheimer adds.
The solution is to gather all your credit cards with outstanding balances and pay them off. Then keep a single card or two for all your day-to-day needs. “That way, you’re not polluting your credit report with a lot of balances,” he concludes.
Keep your Payment History Clean
When lenders request for your credit report and credit score, one of their main focus is your credit repayment history and how reliable it is. That’s because past performance is usually a strong indicator of future payment performance.
Some of the ways to improve your credit score by leveraging payment history include:
- Timely payment of all bills. Not only credit card bills or regular loans like auto loans and mortgages, but also utility bills as well. Being late on a payment, even for a few days can negatively impact your credit score.
- Contact a credit counselor or your lender if you’re having trouble honoring the current payment plan on an existing loan. Most lenders are willing to come up with a workable payment plan that won’t hurt your credit score if the current plan is not working for you.
- If you miss a payment, get current as soon as possible and stay there. Although delinquent payments appear as negative marks on your credit report for 7 years, their effect on your credit score decline over time. This means older late payments don’t have as much of an impact as recent ones
To make sure you always pay on time, it’s also advisable to make use of available tools provided by most lenders such as auto payments and calendar reminders.
Depending on your credit score, you can use BankRate’s comparison tool to help you choose different financial products offered by different lenders across the United States.
Old Debt is Good for your Credit Score
When considering some of the top ways to improve your credit score, old debt is sometimes erroneously overlooked. There’s a common misconception that old debt on your credit report will negatively affect your credit score. On the contrary, good debt – debt which you’ve managed to handle well and repaid as agreed – is good for your credit score. Credit accounts in such good standing should remain operational for as long as possible. A long history of good debt will positively impact your credit score.
Maintaining a Low Credit-utilization Ratio
When figuring out ways to improve your credit score, how much credit you’re allowed by lenders versus how much you’re utilizing is a major contributing factor. The smaller the ratio, the better it is for your credit score.
“To boost your score, pay down your balances, and keep those balances low,” advises Pamela Banks, a senior member representing Consumers Union. Because even if you make full payments each month, you could still have a high utilization ratio (the optimum is 30% or lower). The reason being some lenders forward the balance on your credit card statement to the credit bureaus. One way to counter this is to ask your credit card issuer if they can accept several payments in the course of a month.
Clearing Up Any Collection Accounts
If possible, pay off any debt instead of moving it to new credit accounts. You can contact the debt reporting agency listed on your report to see how willing they are to stop reporting your bad debt to other reporting agencies if you make a full payment.