One of the first steps on the road to financial strength is to check your credit score and identify ways to improve it.
Having a good credit rating can help you benefit from lower interest rates on all kinds of financial products, from mortgages to car loans and credit card, lower your monthly payments and help you free up money that can be used to cover other expenses or to channel your savings. invoice. A high score can also make it easier to rent an apartment or apply for a new job.
As pandemic protections come to an end, it’s an especially important time for many people to work on their credit.
Homeowners have until September 30 to request a mortgage remission. The latest moratorium on evictions has been overturned by the Supreme Court, which means tenants late in paying rent risk being forced to vacate their homes unless they can get emergency help for the rent. (Federal student loan borrowers now have until February to start repaying again.)
Improving your credit score doesn’t happen overnight. Whether or not you have taken advantage of these borrower protections, now is the time to work on your score. These steps can help you get started on the path to a better financial future.
How to increase your credit score
Your credit score is intended to tell lenders whether you are a high risk or a low risk borrower. FICO and VantageScore (the score developed by the three major credit bureaus: Experian, TransUnion and Equifax) will be between 300 and 850. Both rating companies consider a score of 700 to be “good”. The better your credit score, the better the rates. interest rates and better terms will be offered by the lenders.
1. Pay your bills on time
According to Experiential , payment history is the most influential factor for your FICO and your VantageScore. From a lender’s perspective, an established history of on-time payments is a good indicator that you will also be managing future debts responsibly.
“You want to avoid things like late payments, defaults, liens, foreclosures and third-party collections,” says John Ulzheimer, credit expert, formerly of FICO and Equifax. “And filing for bankruptcy is a horrible idea. Anything that indicates a default on a liability will hurt your credit score. “
2. Keep your credit utilization rate low
Evaluate your balances against your credit limit to make sure you’re not using too much available credit, a practice that can indicate risk.
Ulzheimer recommends trying to maintain a 10% utilization rate. “The higher this ratio, the fewer points you will get in this category and your scores will absolutely suffer,” he says. “In fact, people with the highest average FICO scores have 7% utilization.”
The date your credit card provider reports to the credit bureaus can also affect your usage rate.
Ulzheimer notes that FICO scoring systems do not distinguish between those who pay in full each month and those with a balance. Your usage rate at the time your transmitter reports is what is used for your score. However, VantageScore considers whether you pay in full or keep your balance from month to month.
If you’re having trouble with high balances and growing interest payments on your cards, consider consolidating with a 0% introductory rate balance transfer credit card, but make sure you know when and how much. how much the rate will increase.
3. Leave old accounts open
Once you’ve finally gotten rid of your student debt or paid off your car loan, you might be anxious to get all traces of it off your report.
But as long as your payments are made on time and complete, these debt records can help improve your credit score. The same goes for your credit card bills.
“A fully paid account is a good thing; however, closing an account is not something consumers should automatically do in the hopes that it will have a positive impact on their credit score, ”says Nancy Bistritz-Balkan, vice president of education Consumers and Communications at Equifax. “Having an account with a long history and a solid history of paying bills on time, at all times, are the kind of responsible habits that lenders and creditors look for. “
Closing a credit card account can actually lower your credit score because you will now have a lower maximum credit limit. If you still have balances on other cards or loans, your usage rate will increase. It is best to keep the card with a balance of $ 0.
Any bad debt that could negatively affect your score is automatically eliminated over time. According to Ulzheimer, bankruptcies can stay on your credit report for no more than 10 years, while late payments and defaults, such as collections, repossessions, foreclosures and liquidations stay on your report for seven years. .
4. Take advantage of score improvement programs
The number of accounts and the average age of your accounts are important factors in your credit rating, which can put people with limited credit histories at a disadvantage.
Experian Boost and UltraFICO are programs that allow consumers to improve a low credit profile with other financial information.
After opting for Experience boost, you can connect your bank details online and allow the credit bureau to add utility and telecommunications payment histories to your report. UltraFICO allows you to allow your bank details, such as checking and savings accounts, to be included in your report when calculating your score.
5. Apply only for the credit you need
Every time you apply for a new line of credit, a thorough investigation is done on your report. This type of query temporarily lowers your score. It is not a good idea to apply just to see if you are approved or because you have received a prequalified credit offer.
If this is a single strong credit attraction, the decline will be slight. However, a series of rigorous investigations could tell lenders that you are taking on too much debt. According to a representative from TransUnion, the effects of a sharp drop in credit on your score can last for up to 12 months.
If you need to apply for new credit, research your likelihood of approval to make sure you’re a good candidate before you apply. Get pre-approved or pre-qualified if possible, as in many cases this results in a credit drop rather than harsh. Soft draws don’t affect your credit score You don’t want to risk seeing your score drop for a denied request.
You should also refrain from applying for multiple short-term credit cards or before getting a large loan, such as a mortgage.
When buying a home, car, or personal loan, you can minimize the tough questions by making rate comparisons in a short period of time. Requests for the same type of loan during a given period will only appear as one request. According to FICO, this period can vary from 14 to 45 days.
6. Be patient
It won’t dramatically improve your credit score overnight. The best way to achieve a great score is to develop good long-term credit habits.
According to Ulzheimer, two influencing factors that influence your score are the average age of the information and the oldest count in your report.
“You really have to have credit for a few decades before you can maximize these categories,” says Ulzheimer. “It takes a long time to improve a bad score and it takes a very short time to destroy a good score.”
Practice good habits like paying off your balances on time, maintaining a low usage rate, and requesting credit only when you need it, and you should see these practices reflected in your score over time.
7. Check your credit
When you view your own credit, a smooth inquiry is generated which does not affect your credit like difficult inquiries do.
Monitoring your score fluctuations every few months can help you understand how well you are managing your credit and whether you need to make any changes. However, you shouldn’t base your financial decisions on your credit score alone.
“I wouldn’t recommend hanging all decisions on a credit score, but putting on hold all decisions about what matters,” said Jeff Richardson, spokesperson for VantageScore. “Focusing on your financial health and the health of your family is the number one priority.”
How to check your credit report
You can get a free copy of your report at annualcreditreport.com .
Under normal circumstances, you might get one free report from each of the three major credit bureaus (Experian, TransUnion, and Equifax) per year. However, in response to COVID-19, you can access a free weekly report from any office until April 2022.
Check your credit report to see if there are any errors that could lower your score. If you find any errors, such as payments that weren’t recorded, you can eliminate them by discussing the information directly with the credit bureau. They are required to investigate any dispute and resolve it within a reasonable time. However, keep in mind that only incorrect information can be removed from your report.
According to Richardson, every credit report will contain the information you need to improve your score. “There are four or five bulleted statements on your credit profile that can help you build a roadmap of what to do if you’re really in a position where you need to improve your score,” he says. .
You may also find text or a numeric code in your report, but without additional information about what it represents. These are factor codes and represent items that can lower your score. VantageScore has a free website, ReasonCode.org , where you can enter the code for any credit report and get an explanation of what it means and tips on how to resolve the issue.
If you are unsure if there are any errors in your report or if you are having trouble solving problems on your own, you can seek expert help. Credit repair companies not only know how to identify and correct misinformation, but they can also help lessen the impact of legitimate negatives on your report.