If you’ve taken a look at your credit score lately and want to raise it by a few points, you may be wondering where to start. Here’s a list of seven ways you can make a direct impact to improve your credit score.
What is a Credit Score?
Your credit score is a three-digit number that represents your credit worthiness. Lenders use your credit score as evidence why they should or shouldn’t let you borrow money. A high score suggests healthy financial behaviors and a good repayment history; lower scores reflect missed payments or a risky borrower. The higher your score, the better.
Ways to Improve Your Credit Score
Since your score will be in flux throughout your lifetime, it’s best to treat good financial behaviors like a marathon, not a sprint. You can still make an impact quickly, though — here are some ideas to get started:
1. Pay down outstanding debts
Lenders like to see borrowers take on healthy risks like installment loans, and they even help boost your score to a degree. What can cause your score to dip is taking out too much money and not repaying it back on time. If you have outstanding debts, focus on paying down the loans or credit cards with the highest interest rates.
2. Follow up on missed or late payments
Payment history is the top factor in your credit score. If you’re not paying your bills on time and want to boost your credit score, changing your behavior here will have the biggest impact. Try setting up your bills on auto-pay so you can’t accidentally forget a due date.
3. Pay bigger bills more often
This suggestion ties into your credit utilization ratio, a number that reflects how much of your total credit limit you’ve spent already. If you regularly carry a large balance on a card, you can keep your credit utilization ratio lower by paying the card twice a month instead of one large lump sum on your regular due date. Aim for a ratio below 10% of your total credit limit.
4. Raise your credit limits
Raising your credit limit is another way to lower your credit utilization ratio. If you have been paying a credit card off responsibly, your provider may be open to raising your card limit. While 10% is the most ideal ratio, you can always aim for 30% first.
Keep in mind: this suggestion is really only for folks who can control their spending. Digging yourself into more debt because you have more will only threaten your credit score more.
5. Negotiate a lower rate
Sometimes it’s possible to lower the rate on outstanding balances. If your lender agrees to a lower interest rate, you can reallocate funds to your principal balance or to another loan with a higher interest rate.
6. Consider your credit mix
Lenders like to see a healthy mix of credit types, such as installment loans (mortgages, student loans, and auto loans) and recurring credit card payments.
If you have only one credit card, but you use it responsibly, consider getting a second and managing purchases across two cards to lower your overall credit utilization ratio. It can also be worthwhile to consider the impact of a home or auto purchase towards your overall credit score.
7. Be thoughtful when applying for new credit
This may be a no-brainer, but if you’re already in hot water for requesting too many credit lines, you shouldn’t bank on additional credit to improve your score. It pays to be intentional about applying for new credit only when it makes sense for your overall credit portfolio.
Individuals with many lines of credit open already should focus on paying down balances and keeping them low. Folks with few lines of credit can and should apply for new credit if it will help them in the long run.
Raising your credit score may take time, but these tips can help you make a difference quickly. The more change you see, the more motivated you’ll be to make these financial tips second-nature.
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