When you apply for a credit or a loan, the first thing that lending companies would check is your credit score. Your credit score indicates your creditworthiness, it shows how risky it is to lend you money. Lenders used this to know how well you have used credit in the past to decide whether they should lend you money now.
The better your score, the more likely that you will get better terms and lower interest rates on loan products and credit cards. Because of the importance of having a good credit score, you should ensure that you have the highest credit score possible.
If you have a low or an average credit score, you might be looking for possible ways to improve it. No need to worry as the experts from Fix Bad Credit will share in this piece some of the ways on how to raise your credit score.
Check Your Credit Reports
One way on how you can start improving your credit score is to review your credit report. Credit reports can show you which risk factors affect your scores the most. These factors can include your history of frequent on-time payments and small balances on your credit cards, late or missed payments and high credit card balances. It pays to know which of these factors is affecting your current score. You can then plan your course of action once you know what needs to be improved or what actions are needed on your part to boost up your credit rating.
By reviewing your credit history, you can also see if there were mistakes or errors on your credit reports that might be the cause of your low credit score. If you find any mistake or error, you will have the opportunity to dispute it and have it removed. By doing this, your score will improve as soon as the false information is removed. You can also try to have those late payments on your credit report which have been paid off already.
Pay your bills on time
How prudently you paid your bills in the past is a good indication of how reliably you can pay your bills in the future. Your payment history greatly affects your credit score. There is no greater strategy in raising your credit score than paying your debts on time. Although it’s not bad to pay off a part of your debt, paying off the entire balance will have the biggest impact on your credit score. Every missed payment and delinquent account hurt your score. You should try to avoid late payment at all costs.
If you have a huge debt to pay, it’s strategic to make small payments throughout the month, so when the due date comes, it would be easier to pay the small amount left in your balance. Multiple payments throughout the month, sometimes called micropayments, lowers your credit utilization. This will definitely improve your credit score.
Avoid Closing Unused Credit Cards
Closing your credit card can decrease your credit score. Closing a credit card indicates that you lost the card’s credit limit and may increase your credit utilization ratio. This could knock a few points off your score.
Keeping unused credit cards open is actually a smart strategy, provided they do not cost you money in annual fees. Remember that the age of your credit history matters, and the longer history you have, the more favorably you might appear to lenders. Keep your unused credit card open, even use it occasionally so your credit card provider won’t close it.
Ask for an increase in your credit limit
There are two ways to increase your credit limit. You can either ask for an increase on your current credit card or open a new card. When your balance stays the same and your overall credit limit becomes higher, this would lower your overall credit utilization.
Between the two ways of increasing your credit limit, the first choice is the preferred choice. Opening a new credit card, despite increasing your total credit limit, can negatively affect your score if you apply for or open several new accounts in a short period of time. The act of applying for credit creates a hard inquiry on your credit report, which can hurt your credit score.
However, if you want to increase your credit limit using the first option, you should make sure that you will not overspend. The goal is to lower your credit utilization ratio by increasing your credit limit. This will only work out if you are not tempted to use the newly available credit.
Diversify your accounts
Your credit mix is determined by how many different types of revolving and installment credit you have. If you have a mix of credit, this shows that you can handle multiple types of loans. Having diversified accounts can boost your perceived creditworthiness. People with a mix of credit types on their credit reports tend to be less risky than those with only one type of credit.
A borrower with a healthy credit profile usually has a variety of credit types, such as credit cards, a mortgage and/or student loans. By having credit mix, including both revolving and installment credit, is ideal for maintaining a good credit score.
Improving your credit score can open doors for you. Having a good credit score allows you to qualify for the best interest rates and terms when you borrow money, or you can get better chances to have your loan approved if you want to make a major purchase, such as a house. Since Credit scores are vital to your overall financial well-being, you should remember to practice the ways suggested by the experts from Fix Bad Credit to help you gain or maintain a high credit score.