How to Improve Your Credit Score: For Beginners
There is a lot of information on the web with tons of tips and tricks to help you improve your credit score, which can be a bit overwhelming, right? So in Lluvia, we will send it to you directly. Here are the top five ways to improve your credit score!
There is a lot of information on the web with tons of tips and tricks to help you improve your credit score, which can be a bit overwhelming, right?So in Lluvia, we will send it to you directly. Here are the top five ways to improve your credit score!
What is a credit score?
You’ve probably heard the term «credit score» before and know what it is, but if you haven’t, here it is: A credit score is a number between 300 and 850 that tells lenders how to evaluate your reputation.
Why is good credit important?
If you have a high credit score, you’re more likely to get approved for things like credit cards, home mortgages, car loans, and even no-deposit cell phone deals (conversely, if you have a low credit score, it’s much less likely to approve of these things). A high credit rating often equates to financial freedom and «buying power.»
How is your credit score calculated?
Your credit score includes a variety of factors that are weighted differently, such as the length of your credit history, your ability to make payments on time, the total amount of credit you can obtain, and any outstanding debt you may have. Your score will be between 300 and 850, with 850 being the perfect credit score – the closer you get to 850, the better your credit, according to lenders!
List of factors that affect your credit score
Payment history – This is an important part of your credit score, accounting for 35% of your FICO score (the score most commonly used by banks, credit card companies, and other lenders). It’s critical that you pay any credit account you have on time—a late payment can significantly affect your score.
Credit Usage: Whether you have $1,000 or $100,000 in credit, this is the percentage you are currently using. As a general rule of thumb, if you’ve used 30% or less of your available credit limit, that’s very good for your score. This specific factor accounts for 30% of your FICO score.
Credit Age: 15% of your FICO score is the length of your credit history. The longer you have opened a credit account, the higher your score will be. Every month counts!
New credit applications – Although they only account for 10% of your FICO Score, new credit applications will definitely lower your score – for example, every time you apply for a new card or loan, you want your score to drop a few points.
Other factors make up the final 10% of your FICO score, such as the total number of credit accounts you have.
How long does it take to improve your credit score?
It’s best to think of improving your credit score as a marathon, not a sprint. Your score will be inextricably linked to you throughout your life, so it won’t change overnight. However, there are some simple steps you can take to set yourself up for success in your financial future.
The fastest way to improve your credit
The fastest way to improve your credit is simple: pay your bills on time. If you don’t pay on time, your life can be complicated in the short and long term!
Steps you can take now to improve your credit score
If your score isn’t what you want, don’t worry, there are plenty of ways to increase it! Here are some of the best strategies:
Pay your minimum balance on time
So when we told you a few paragraphs ago that paying your bills on time is the best way to improve your credit score, you can stop sweating, we don’t mean paying your bills completely on time! Just making the minimum payments will do wonders for your credit score in the short AND long term.
Have the correct number of credit cards
To surprise! There is no “ right ” number of credit cards. Your credit journey is all about balance, pun intended. Ten or more open credit accounts will only be good for your score and financial well-being in the long run! but opening five cards in a short amount of time won’t be good!Think about it: sure, you’d have new cards, which means a higher overall credit limit, but your overall credit age will drop dramatically, not to mention the cost of opening so many accounts new to your score Remember, it’s a marathon, not a sprint.
Like we said, it’s all about balance – add an account when you need it and when you can live with a short-term negative impact on your credit score. And never close an account unless you absolutely have to – you want to keep that nice, long age of credit history!
Try to have different types of accounts.
There are many types of credit accounts. In addition to regular credit cards, there are retail store credit cards (often with a much lower credit limit that makes it easier to get approved!), small personal loans from your local bank (credit history by this author started with a simple $1,000 loan taken on the advice of his parents (actually), car loans, etc. The more varied credit accounts you have, the better you’ll research lenders!
Increase your credit limit
The traditional way to increase your credit limit is to apply for (and get approved for) a new credit account! But sometimes just asking for something can go a long way: If you want a higher credit limit (which, as we know, affects our credit score), all you have to do is ask! Many of the major banks and credit card companies have tools on their websites to request a credit limit increase, but if you don’t want to go this route, a simple call to their customer service will do the trick. The worst they can say is no without hurting your credit score.
pay your debt
This may seem obvious, but it is. Sometimes it helps to get information about your monthly payments. If you’re not making progress on your balance and are only paying monthly interest, it might be time to apply for a balance transfer credit card; These cards are designed to allow you to transfer your balance (for a small fee, but it’s worth it in the long run!) to the new card and in some cases start making 18 months of interest-free payments.
Dispute any inaccuracies
Believe it or not, sometimes the misinformation is related to our own personal credit reports. No one will report you unless you do it for them. So, check your credit report and make sure there are no inaccuracies; if there are, you have the right to challenge the credit account lender directly.
The most important thing to remember is that significantly improving your credit score is not something you can do overnight. For example, maybe you are about to reach a stage in your life where you want to buy your first home. Maybe your credit isn’t what you want; After all, you want the best interest rate on your future mortgage. But that’s a good thing, because over time, after using these tips to improve your credit score, you’ll start to see positive changes. Once the ball rolls, it gets easier and easier to move forward!