Before knowing how to improve your credit score, let’s find out what a credit score is?
A credit score is a number ranging from 300 to 850 that represents all of your credit histories. It is calculated based on these five following components:
- Payment history: 35%
- Amounts owed: 30%
- Length of credit history: 15%
- How many types of credit in use:10%
- Account inquiries: 10%
To save you money when borrowing, a good credit score is a must; this three-digit number ranging from 300-850, 850 being the highest, is used by lenders to decide how likely they will be repaid on time.
If you’ve got a good credit score, there are more chances of getting credit cards or loans with the most favorable terms that will ultimately save your money.
In this article, we’ll be talking about some of the tried and tested tricks, tips, and hacks that are surely going to boost your credit score quickly. Let’s discuss seven awesome hacks that will tell you how to fix your credit score.
To start, you need to know what your credit score is right now. But the question is, how would you know your credit score? Simple, you need to go to this article to get your credit score for free here.
So, “what is the benefit of knowing my credit score?” well, once you are aware of your credit score, you will understand what the main factors that are affecting your credit score are. These are the risk factors that will help you know what changes you need to improve your credit scores.
1. Pay Your Bills on Time
So, what are the things that lenders review before granting you a loan? Lenders will check your credit report, and they will undoubtedly request a credit score for you.
They are keen to know how reliably you pay your bills on time, as this is probably the best way to understand past performance and helps them to predict future performance.
The final question arises on how you will improve your score, and the best way is to pay your bill on time every month. If you are paying late or settling your account balance less than what you originally agreed to pay can negatively affect your credit score.
You can use external tools that will remind you to pay your credit card bill or to deposit money into your Checking account when you get paid.
2. Pay off Debt and Keep Balances Low on Credit Cards and Other Revolving Credit
Another critical number in the credit score calculation is the credit utilization ratio. The credit utilization ratio is calculated by adding all your credit card balance and dividing it by your total credit limit.
If you want to figure out your credit card’s average utilization ratio, add all the statement balances of each month and divide it by 12. What you get will be the actual credit you use each month on average. Lenders want to see it as low as possible but play on the safe side of 30% or less.
3. Apply For New Credit Card Accounts When You Need It
Many people apply for credit cards and open new credit accounts even when they don’t need them. If you’re opening an account to have a better credit mix, this will not improve your credit score.
Having unnecessary credit cards harm you in multiple ways, so it is better to keep only the cards you need.
4. Don’t Close Unused Credit Cards
Don’t close your cards if you are not using them frequently. It is smart not to close your credit card if you are not getting charged an annual fee. If you do close your card often, it will hit an increment in your credit utilization ratio.
5. Dispute Any Inaccuracies on Your Credit Reports
This last step is probably the most crucial one that people right now are frequently missing. You should regularly review credit reports from the three bureaus for inaccurate reporting. If you find any incorrect information in your credit report, you should immediately dispute the information and get it corrected as soon as possible.
So, these were some of the tips that you can follow to improve your credit score quickly. Try to keep your credit card balance as low as possible and regularly pay your bills. Doing so will help you save money on your auto insurance, rent better apartments, and even no need to give a security deposit with the utility companies.