Your credit score tells about your financial health. It tells when if you pay your debt and how active you are with cooperating with your bank. Especially if you apply for a lot of credit cards because your old cards have either run into trouble and got closed, or you’ve had so much debt with your last ones that you’ve decided to change cards because you are unable to deal with the said issues.
In this article, I will try my best to explain in detail how you could improve your credit score, as it is a very crucial part in taking loans and getting debt for purposes that concern your own financial growth. May it be for a house, a car, or for a business, loans are what you need if you’re low on budget and capital.
💳 What Is A Credit Score?
Usually, credit scores are expressed in numbers from 300 to 850. The premise is simple, the higher your credit score, the more willing the lenders are to let you take bigger loans. Just like trust, credit score is earned the more you develop good interactions with who you’re borrowing money from.
Credit score is based on a lot of things: your total debt, how much of it you’ve paid, how fast you pay it (do you pay it before the deadline or do you exceed and get penalties) and how many accounts you have that are open. If you have a lot of debt, and you rarely pay them on time and have a lot of accounts – you have a lower credit score, most likely.
➕ How Credit Scores Are Calculated
There are 5 things that companies look for most of the time to calculate your credit score: payment history, the amount of current debt you haven’t paid, the amount of available credit (and how much credit you’ve used), the types of accounts that you have, and how many accounts that you have.
A money lender will always ask themselves when they let someone borrow money – “Will this person pay the money back in time when I lend it to them?”
This question is, in short, the most vital in calculating your credit score for them to estimate how much money they should entrust with you.
If you don’t pay in time, and you exceed the due date of the credit, then you’ll have worse connections with the creditors. This will lower your credit score, especially in the long run if you do it constantly.
They also have a history of your credit payment. It’s almost always likely that they got their eyes upon that one time where you’ve failed to pay your debt in due time.
These mistakes will always be put into consideration and will most likely lower your credit score. You should always avoid taking hits in your credit score by paying your loans and debts late.
Oh, and by the way, they will also have collected data on your previous businesses and other ventures. They know when you’ve become bankrupt and how you’ve gotten into that situation.
Then again, you cannot change the past but you can change what happens in the future. Abiding by the rules of those who let you borrow money will ensure that you get into good terms with them. You’ll be entrusted with larger amounts of money in your next loans.
📋 Why do millionaires or rich people use credit cards more often?
Rich people use credit cards more often. This is because they earn credit scores that increase the amount of money they can borrow. They also earn points and use them for discounts. Rich people can improve their credit score by using it frequently.
Here’s how: if they pay $10 for a coffee and use their card, and since they are rich, they can pay it as soon as possible. In the end, their credit score also increased. All because the company saw how fast that person paid his debt.
💬 Steps to Improve Your Credit Scores
Improving your credit score can be an easy or a difficult task. It depends on what you’ve done in the past, whether you’ve sought for each and every way to look good and under the bad radar, or you’ve gotten into unexpected troubles and have been unable to always stick by the rules.
There are steps to remember in improving your credit scores:
1. Reviewing your reports
Just like with other issues that we come across, you must know what strengths and weaknesses the account you’re using has. Whether your problems are concerning late payments, using too much debt, having too many accounts, or having delinquent accounts, knowing these issues will take you further than what you’ve aimed for in clearing your name of bad things.
2. Ask your credit card companies for assistance
In everything you do, do not be ashamed to ask for help. There is nothing wrong with asking for help.
In this case, if you want to increase your credit score, ask your credit card company how to increase it. One such way of which is to avoid late payment because it can affect your overall score. Plus, you will also be charged penalty fees.
3. Pay on time and keep track of your bills
Out of all the aspects in calculating credit scores, your biggest asset (or liability) will always be the payment history.
If you’ve had a lot of problems with due dates and late payments then it would be no surprise that it would take a huge toll on your credit score. This is the first thing you should take care of when improving your credit score. Changing your payment history needs a lot of time, especially when you want to make the current parts of it without any issues consistently.
Furthermore, keep track of your monthly bills. You can have a way to have them automatically paid if you’re always busy and won’t get to pay your bills and credit on time. Every second counts!
4. Remember the “30% rule”
Always keep your balance below 30%. In this way, you’ll have not only a greater breathing space especially for emergencies where you’ll have to borrow more money in the unexpected future, but you’ll also look good in the eyes of the investors. This is because it seems wise to seem like you’ve gotten your borrowed capital planned and calculated.
5. Credit request limitation
There are two types of inquiries, hard and soft. Soft inquiries in banks refer to things such as checking your credit. They do not affect your credit score in any way. Hard inquiries, however, will most likely affect your credit score dramatically.
Things such as auto loans, mortgages and filing for a new credit account will take a heavy toll on your credit score. You should inquire “hard” stuff wisely and moderately. However, to make it clear, you can do hard inquiries once in a significant span of time. It only affects your credit score once you do it a few more times than needed.
6. Keep old accounts, deal with past and current issues
Having too many accounts will affect your score negatively, and rightfully, in an immense way. Not only that, but having delinquent accounts – those that have not made minimum payments within 30 days or greater – will dramatically affect your score in a negative way.
So if you have past accounts that have unpaid debt, and delinquent accounts that haven’t made minimum payments, you should take action immediately.
Use the least amount of accounts as possible, and be sure to not to have a bad reputation to the creditors with these accounts.
7. Track your progress
There are credit monitoring services that offer help to those seeking to track their progress in having a good credit scores. A lot of these services are free, and they thoroughly check for changes in your reports.
If your accounts are fully-paid off, then they’ll notify you. If you’ve seemed like you’ve made good progress in your score, they’ll be surely hitting you up.
Tracking your progress gives you more insights as to where you should focus. Too much effort in one aspect will probably bog down your progress. You can do more when you do it efficiently, yes?
8. Always find ways to boost your credit score
It is already given that you can boost your score by paying bills on time. However, it will take a lot of time.
At this point, Experian Boost can help you out because it will credit you for paying utility bills such as electricity, water, and internet connection.
It is very easy because you just need to connect your bank accounts with their services and let them do the rest for you.
With the help of the tool, you can now monitor your credit through its free report and FICO score. The good news, it is all free of charge!
9. Limit asking for new credit
Inquiring and requesting services have two types: hard and soft. Soft requests or inquiries refer to checking credit balance, giving permission to someone to check your credit, and a lot more.
In other words, these are inquiries that will not improve your overall credit score.
Meanwhile, hard inquiries can affect your credit score greatly from a few months up to two years. It refers to inquiries like applications for a new credit card, a mortgage, and other forms of new credit.
However, asking for hard inquiries occasionally will not affect your credit score. In this case, you must limit new credit for a while if you want to improve your it.
⏩ How Long Will It Take to Improve Your Credit Score?
It heavily depends on what bogged it down in the first place. Things such as bankruptcy will surely take a lot of time to recover from. Your credit score will probably go back to where it should be within 6 years. Late payments for mortgages will take up to 9 months to completely mend. Default payments that are missed will take up to a year and a half to be sorted out.
However, smaller issues such as maxing out credit cards, applying for new ones and closing old ones will only take up to around 3 months of recovery.
You should loan wisely.
Being sure and careful with your future loans will be the best approach to making sure your credit is high. Missing out on payments, having a lot of accounts, leaving your debts and declaring bankruptcy will surely make your reputation look bad. The best way to counteract this is by doing the opposite of what makes your credit score look bad.
Plan ahead, and leave a lot of free space for unexpected events. You might need to take a loan for something so suddenly, but your restrictions might pose problems. Hence, taking it slow and careful will surely help you in the long run.
Keep track of what you need more to improve, and know what your strengths and weaknesses are. These are the ways to develop a good credit score and have more opportunities for larger ventures by having loans.
❓ You Might Ask
- How fast can you raise your credit?
Pay your bills on time, focus on micropayments if possible, fix credit issues, and keep your credit cards open. These are other ways to raise your credit score within 30 or so days.
- How can I raise my credit in 30 days?
To improve your credit score in 30 days, you can Increase your credit capacity. Contact your credit card issuers and request a credit limit increase. Enquire whether they can increase your credit limit via a soft pull of your credit, as a hard inquest will show up on your FICO score under the “New Credit” category.
- How do I get my credit score up 100 points in one month?
It’s like weight loss, the more weight you have, the faster and easier you lose weight. If your score is lower than usual, then upping it a hundred points more will be easier. Following the 30% rule mentioned earlier, you’ll be able to up it in just a few months.
Keep track of what you’re about to miss on your due payments, and pay them on time. Other factors that are lowering your score in the first place will also help out in improving your credit score. Fixing what causes problems the most will almost always help immensely.