7 Simple Ways To Fix Your Credit Score Today
Lenders require a high credit score while applying for a loan. If yours is low, there’re simple steps you can take to fix your credit score and improve your financial position.
The credit score is the most crucial tool lenders use to estimate your financial health—the higher your credit score, the higher your chances of approval for new lines of credit. Also, having a higher credit score provides opportunities for the lowest available interest rates on mortgages, auto loans, and other financing services.
Banks offer better rates and perks to high score borrowers because they are considered low-risk clients compared to those with poor credit ratings. Moreover, a bad credit score can impact your ability to get a rental home, rental vehicle or even life insurance. So, it’s wise to work on your credit repair before it is too late.
How to Fix Your Credit Score?
If you want to fix your credit score, there are several things you can start quickly, but it takes some time and a bit of effort. Here is how you can start raising your credit score:
1. Check Your Credit Reports
Checking your credit reports can help you determine what was working in your favor and what was against. Get a copy of your credit reports using each major credit bureau such as Equifax, TransUnion, or Experian. Then review these reports to figure out what’s hurting or helping your credit ratings.
Factors that help your credit score are a mix of loan accounts, on-time payments, low credit usage, older accounts, and fewer inquiries for new accounts and late mortgage payments. If there are any errors in these areas, you can file for corrections.
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You should check your reports regularly but always do it through soft inquiries. Also, consult your bank regarding this because some banks offer free credit monitoring to their customers.
2. Pay Bills on Time
According to the FICO score, your payments history is the most significant contributor to your credit score estimation. If you pay your bills responsibly and on time, it’ll improve your payment history.
You can avoid late payments by keeping track of your monthly bills, either paper or online. You can also set payment alerts or automate your bill payments from your bank account.
Pay all your monthly bills with a credit card so you can pay the balance in full each month to avoid interest. Following this route can simplify your billing and fix your credit score simultaneously.
3. Aim for Low Credit Utilization Rate
Credit utilization rate refers to the percentage use of your total credit limit at any given time. According to FICO, it is the second most important factor in score estimation after payment history.
Paying your credit card balances in full each month will keep your credit utilization under control. The ideal rate is 10% of the total credit limit, and you should maintain it below 30% for an acceptable credit score.
Another way to keep your credit utilization in check is by increasing your credit limit. You can do this by applying to your credit card company. Most companies allow you to request a limit increase online only by updating your annual income information.
4. Limit New Credit Lines
Your credit history includes two types of inquiries: hard and soft inquiries. A soft inquiry might include checking your own credit, checks performed by financial institutions, or an employer’s permission to check your credit. These inquiries don’t affect your credit score.
On the other hand, hard inquiries are reported while applying for a new line of credit such as auto loan, mortgage, or a new credit card. Occasional hard inquiries wouldn’t have a significant effect, but a large number of inquiries in a short period of time can adversely affect your credit score. In such cases, banks take you as a high-risk borrower because of your financial instability.
It is better not to apply for new credit for a while if your goal is to fix your credit score quickly.
5. Try Score-Boosting Programs
Having not enough credit history means you have a thin file. You can take advantage of this condition by using score boosting programs like UltraFICO and Experian boost.
Experian boost asks about your financial data not available in credit history, such as your utility history and banking information and uses this information to calculate your credit score. This program is free for people with little or no credit history.
UltraFICO is also a free program and works in the same way. Things that can help your score in this program include utility bill payments, savings cushion, maintaining a bank account or avoiding overdrafts.
Make use of your thin file and apply for any of these programs to improve your credit score.
6. Leave Your Old Accounts Open
You might be impatient to close your student loan, auto loan or old credit accounts after paying the debts. But, if your payments were on time and completed, those accounts can actually help your credit score.
If you have an old credit card account, avoid closing it because closing the account while you have a balance on the card would lower your maximum credit limit and increase your utilization ratio. You are better off keeping those accounts open.
Also, make sure to resolve any delinquent accounts. For instance, if you’ve an account with missed, late or caught up payments, take action to make your future payments on time. Doing so will improve your payment history going forward.
7. Be Patient
Being patient is the key in this game. You can’t achieve credit repair overnight. The best way to do so is to develop good long term credit habits.
The two major factors influencing your score are the oldest accounts and the average information age. It takes a very long time to fix a bad credit score and very little to trash a good score.
Establish decent credit habits like keeping a low utilization rate and making payments on time, and you’ll see these practices reflect in your credit reports over time.