Lenders take a risk when they loan money to you. That’s why your credit score is important.
Your credit score shows potential lenders how financially reliable you are. They will use your credit score to decide whether they will lend to you, and how much.
Your credit score is a number between 300 and 850. Anything higher than 700 is considered a good score.
It is affected by your financial history and current financial activities. This includes how much debt you have, how many credit accounts you have open, and whether you repay money you owe on time.
Are you worried about your credit score? Don’t worry, managing finances and improving your credit score is easier than you might think. Keep reading to find out more.
Know Where You Stand
Before you can do anything, you need to know where you stand. So, find out what your credit score currently is.
There are plenty of ways to do this. Many websites allow you to quickly and easily look at your credit report and find out your credit score. Plus, it’s free!
Your credit report will give you your credit score, which is a number between 300 and 850. But it will probably also give you some extra information, like:
- Payment history: any late or incomplete payments
- Credit utilization: the ratio of your credit card outstanding balances vs balances
- Types of credit: credit accounts, revolving accounts, and installments
- Credit inquiries: when a third party, like an employer, has checked your credit report
Your credit report will help you to understand your credit score. Make sure to check for any errors, and dispute them with the credit report company you have used.
Once you know where you stand, you can then learn how to increase your credit score.
Pay Any Outstanding Bills
Next, pay off any outstanding bills that you owe. This is a simple and effective way to improve your credit score.
Pay any last or past due accounts that you can. It may take a couple of months to have a positive impact on your credit score, but it is the best place to start.
Pay on Time
Your payment history has a huge impact on your credit score. If your history shows that you pay on time, it will help you get the highest score possible.
Going forward, try to pay all of your outstanding balances on time. This includes payments on credit cards and loans.
If your payment is later than 30 days, it can be reported to credit bureaus. This can then lower your credit score.
If you’re struggling to make your payments on time, contact the companies that are responsible for these payment lines. They will be able to work with you to remake your payments.
Reduce Revolving Account Balances
Revolving credit allows you to repeatedly borrow money – up to a set limit – while making regular repayments. Examples of revolving credit include credit cards and lines of credit.
Buying a lot using your revolving credit will mean that you have a high balance. This can damage your credit score, as it will show that you use credit a lot.
Try to keep your balance as low as possible, relative to your credit limits. This will help to improve your credit score.
Increase Your Credit Card Limit
Another way to get a higher credit score is to increase the limit on your credit card(s). This shows potential lenders that you are responsible, and can handle a larger amount of credit.
However, it’s important that you only do this if you are responsible for your finances. Even with a higher limit, keep your balance as low as possible and make all repayments on time.
Limit Hard Inquiries
Hard inquiries are when a lender takes a look at your credit report. This can happen when you apply for a credit card, loan, or mortgage.
A record of hard inquiries can lower your credit score. This is because it suggests financial troubles. So, try to keep hard inquiries to a minimum.
Managing finances and increasing your credit score can seem daunting. But it doesn’t have to be.
Once you know where you stand, you can take these steps to improve your financial health and your score.
Was this helpful? Then take a look at our other financial ideas and tips.