Your capacity to borrow money for large purchases is heavily influenced by your credit score. Besides, a good credit score can also lead to cheaper interest rates and increased credit limits. Since your credit score is based on your current debt and payment history, lenders will use it to evaluate whether or not you are a good candidate for a loan.
So if you have a low credit score, things can get pretty complicated on the financial spectrum. However, the good news is that you can improve it using the following tactics:
Make Sure Your Credit Reports Are Error-Free
It is a good idea to check your credit score every now and then. For that, you will have to request a copy of your credit report and evaluate it comprehensively for mistakes. If you see an account you did not open, for example, it is likely that your information was misused, or perhaps it was mixed up with the information of someone else. In such situations, you can submit a dispute to have the account removed.
If an error is found on all three of your credit reports, you should file a dispute with each of the three credit bureaus. For each of the three major credit bureaus, the Consumer Financial Protection Bureau gives instructions on how to file a dispute online, over the phone, or by mail. This information is also available on each of the credit bureau websites.
Stay On Top Of Payments
The easiest way to improve your credit rating is to pay all of your bills on time. There are many methods to calculating a credit score – for example, a VantageScore or a FICO score – and all of them are heavily influenced by your payment history. That means that one of the best ways you can change your credit score for good and keep it stable is to make on-time payments month after month, year after year.
If you have trouble remembering to pay bills by the due date, you may consider setting up reminders or autopay options. Don’t forget that you can contact debtor companies if you need help catching up on bills. They often have programs that will help you pay off balances!
Get A Credit Card
If used wisely, a credit card can be an effective tool for improving your credit score. Most card issuers disclose account and payment information to all three major credit bureaus, but some do not. Therefore, it is important to choose the right credit card. Not all credit cards report your payment history to all three major credit bureaus, and if they don’t, you are missing an opportunity to improve your credit.
One option is to apply for a secured credit card if you have bad or average credit. Your deposit will serve as an insurance policy for the issuer in case you do not pay back what you owe. That being said, a secured card is just like other types of credit cards in terms of functionality, and it can assist build your credit history.
Make The Most Of Free Credit Monitoring
A vigilant eye on your credit is critical. A credit monitoring service can notify you of significant changes in your credit. As a result, you can track any suspicious behavior. A strong credit score can be ruined by fraudulent behavior, so it is necessary to regularly check your credit score and challenge any information you find to be incorrect.
Devise A Debt Repayment Strategy
Credit scores are not improved by moving debt from one account to another. Creating a realistic strategy to pay off your credit card debt is the best course of action. One strategy to pay off debt quickly is “the snowball strategy.” With this method, you pay down your highest-interest credit card bill first, while also making minimum payments on the other cards. Once you have paid off your first card, you can then start paying off the debt with the next-highest interest rate, and so on.
Mix Things Up A Bit
When people say “credit mix,” they mean the different types of accounts that appear on your credit report. Lenders prefer to see a combination of revolving and installment credit accounts, such as mortgages, student loans, and auto loans. Even if it will not entirely make or break your credit score, it could be a big advantage to borrow money in as many different ways as possible. However, taking out a loan solely to diversify your credit mix is not a smart idea.
Do Not Frequently Apply For New Accounts
A hard inquiry will be reported on your credit report if you make an application for a new line of credit and hard inquiries have the potential to temporarily reduce your score. So, before applying for a new credit card, do some research to see if you have a decent possibility of getting approved. While one hard inquiry isn’t bad, studies show that people with too many hard credit inquiries in a short amount of time are more likely to declare bankruptcy.
There are some exceptions to this rule, such as when you’re buying a house, but in general, you should be careful about applying for loans and credit cards. While they can be useful to build your credit score, you should only borrow as much money as you can comfortably pay back.
