Credit

Tips to Help Increase your Credit Score

Your creditworthiness is determined by your credit score. Credit bureaus generate the score from your credit report. Higher values indicate the ability to manage and repay debts while lower values point to a high possibility of defaulting. Below are tips to help you increase your Credit Score

#1. Understanding how Credit Score is Calculated

The first step to improving your credit score is understanding how different information from a credit report factor into the credit score;

Payment history (35%): This takes into account your debts and how steady you have been in clearing them.

Credit utilization ratio (30%): This is the ratio of the amount of credit you’re using against what is available to you.

Length of your credit history (15%): This category deals with the age of the oldest and newest account as well as the average of all your accounts. It also looks at how consistent you have been at maintaining specific credit accounts.    

New credit accounts (10%): The number of new accounts that you open in a given time period is used to determine your spending culture. Opening several credit accounts in a short time points to heavy reliance to borrowing.

Your credit mix (10%): Attention is also paid to the type of accounts in your name. These include; credit cards, personal bank loans, student loans, mortgages etc.

#2. Pay Attention to your Credit Cards

Among the factors that weigh heavily on credit score is number of credit cards and balances on each. Small balances should be cleared especially when you have several cards. At the same time, consolidating your credit cards into the fewest number possible increases your credit score as compared to having many cards with varying balances.

Aged credit shows that you are accustomed to handling debts earning you higher points on your score. While closing credit cards, go for the newer ones since they lower the average age of your accounts.

It pays to avoid credit card purchases when aiming to increase your credit score. Such purchases raise your credit utilization ratio which in turn lowers your credit score. A low utilization ratio shows that you are only using little of what is at your disposal which is a plus on your debt management skills.

#3. Keep a Clean Debt Record

Clearing debts does improve your credit score but the manner in which you go about it matters more. A lump-sum repayment on a revolving debt gives an impression of a quick fix on your score. On the other hand, timely repayment of debts is a seamless way of boosting your credit rating.

Missed payments and those that fall short of the monthly requirements will ultimately damage your score. Talking to your creditors can see your payments reduced to favourable amounts during the hard times. This will help you keep up with repayments and avoid delinquencies.

The idea here is to increase your score in the long term since it takes 7 years for negative items to be struck off your credit report.

#4. Keep off New Credit Card Accounts and Purchases

New lines of credit affect your score negatively. Open accounts on a need to basis but not ones aimed at only increasing your credit limit. Several accounts opened within a short time raise a red flag as opposed to ones opened over a longer time period.

A hustle free way of lowering the utilization ratio is by having a friend make you an authorized user on his/her existing credit card account. As long as balances are being paid promptly, your credit score will improve. The move can also help in generating a good credit mix which will enhance your credit report and increase your score.

Where possible, use cash for purchases. This will reduce the possibility of maxing out your credit cards and increasing the ratio. Just remember not to forego bills that reflect on your credit report in order to make such purchases.

#5. Correct Errors on your Credit Report

Errors like fraudulent purchases on your credit cards or extra accounts that you don’t know about can impact your score negatively. A simple scrutiny of your credit report puts you in a position to identify and dispute such mistakes. Get annual reports from 3 different credit bureaus, make comparisons and file disputes for any inconsistencies that may arise.

When all is said and done, this is about shining in the credit score sector. You have the tips, go ahead and make it count!