Updated: Feb 19
Your credit score is one crucial financial number in your financial life. The higher the score, the higher the chances to qualify for credit cards and loans at favorable terms that in turn saves you more money. For example, an individual with a credit score of 450 will pays a higher interest rate than an individual with a credit score of 700, when they both applied for a loan. If your credit score is not in the higher than 700, then you ought to consider improving it. The truth is, there are lots of adverse information on how to improve your credit score. You probably are aware of this already. A basic google search on this topic will convince you that all the “experts” have their own opinions about how to “easily and quickly improve your credit score.” So, that brings us to our topic today. This business about credit scores can be frustrating and confusing, so let’s get to the heart of the matter and discover the truth about what you can do to boost your credit score.
This piece will be sharing some simple changes you can make to quickly boost your credit score to 700 points. However, you ought to understand that it takes time to see meaningful results, especially if your current score is in the low 400’s.
Here are some tips that will boost your credit score:
Fix late payments
In case you are behind on any payments, or if you missed any payment, the credit report will inform you, and you should take action to correct the mistakes. You will be unable to improve your credit score without addressing missed and missed payments.
If you have any debt ongoing in the collection, you have to liaise with the collection agency to pay it off.
Make sure your credit reports are accurate
In a world full of identity thieves, you have to check your credit report regularly to ensure that they are valid and be ever ready to dispute any wrong charges. Ensure that all your active accounts are being reported, ensure no missed or late payments on your reports.
Automate your bills payment
Now that you have fixed late payments make sure that you do not miss your payments again going forward. It is important to now automate your payments. Think about this, the world is busy, you have your family, other activities to think about and work, automating your bills payment will make your life easy.
Automating your bills simply means that you should track all your expenses. All you are required to do is register with a budgeting app that tracks all your expenses. You will be able to see at a glance all your accounts, savings, credit card, current, auto loan, mortgage, student loan, on a single platform. It informs you when your bills are due, when and if you go over your budget, it sends bill reminders to you via email or text, and it alerts you of all transactions on your accounts.
Don’t close unused credit card and limit credit application
Don’t go around opening other lines of credit. Manage the ones available by minimizing your credit utilization ratio. Opening a new credit card will harm your credit score since it will require the credit card company to pull your credit report, which will generate hard inquiries on your report. In case you have any old unused credit cards, don’t shut them immediately, especially if they do not add any extra cost to you. The unused credit card will aid in lowering your utilization ratio and increase the length of your credit history.
Pay off Debt and Reduce your credit utilization rate
If you can manage to pay off your debt, you will automatically place yourself for a better financial future where you are not under any pressure because of debt. Reducing your credit utilization is one of the fastest ways of improving your credit score. The recommended utilization rate is less than 30%. A loan credit utilization ratio allows the lender to know that you are a good manager of your finances and are not in any sort of financial crunch.
Busting Credit Managing Myths
There’s more credit score information available than ever with the advent of the internet. Unfortunately, many people continue to hold harmful misconceptions about credit scores. Below are some of the common myths surrounding credit scores.
Checking Your Report Hurts Your Credit Score
A notation called an “inquiry” goes on your credit report every time someone looks at your file, and rumor has it that inquiries may hurt your score. Well, yes and no. An inquiry influences your score only if it’s linked to a credit application submitted by you.
If you apply for a credit card or a loan, your score might fall, because that application indicates you’ll be increasing debt. But by simply looking at your credit report, the resulting inquiry does not affect your score. If anything, observing your report is a sign of responsible credit, and financial management, though you don’t get points for doing it.
Demographics Affect Your Credit Score
Just as credit reports don’t indicate your income, they also do not provide much demographic information. Credit reports have no information about such things as religion, race, national origin, profession, disabilities, military veteran status or sexual orientation. They also don’t indicate how much money in your bank or retirement accounts.
Closing a Credit Card Increases Your Credit Score
If you have a credit card, not in use, you’re unlikely to improve your score by closing the said account. Closing the card may even lower your score. Credit scoring models do not measure risk by how much credit you have, but rather by how much of that credit you’re utilizing — a ratio known as “credit utilization”. When you close an unused account, you reduce your total available credit, therefore your credit utilization goes up.
Couples Have Joint Credit Scores
There’s no such thing as a joint credit report for married people or anyone else. Married or single, you have your credit report, one linked to your Social Security number. If you are married, you and your spouse may possess joint accounts, such as mortgages, shared credit card accounts and car loans. These joint items appear on both your credit reports and will affect both scores. But your credit report is yours alone.
Employers Check Credit Scores
It is contrary to the law for employers to use credit scores to screen job applicants. The media routinely gets this fact wrong because people do not understand that credit reports and credit scores are not the same things. An employer can crosscheck your credit report but not your credit score.
You Have to Earn More Money to Have a Good Credit Score
How much money you have indirectly affected your credit score? Income is not a factor in your credit score. However, bill payment habits (impacted partially by your income) factor into your credit score. No matter how much money you have or make, paying your bills on time is the most important thing you can do for your credit score.
How I Manage My Investments, Other Personal Finances, and Bank Accounts Impact My Score
Anything about your investment accounts, transactions or bank accounts made in cash do not affect your score. Overdrafts on the other hand can affect if your bank gives you a line of credit in case you overdraw — then that line of credit might show up on your reports. You should ensure that all accounts are closed properly, and all fees are paid off.
You Need to Go into Debt to Build a Good Credit Score
You need to use credit platforms to build a good credit score. That can be as simple as
opening a credit card, charging a small amount with it monthly, then paying it off monthly. You shouldn’t create more debt than you can afford to build a good credit score.
Disputing an Account Makes it Come Off of My Report
Disputing an account with the credit bureau will result in them investigating your claim. However, if they find the information or the account to be accurate, the information will not be removed.
In a nutshell, debt is your enemy. By going into debt, you make other people (your bank) richer and make yourself poorer. Responsibility is important in using a credit card. Do not go into debt to impress other people.
Live within your means, and don’t bite more than you can chew in your financial life by managing credit responsibly. If you effectively manage your credit responsibly, you will be control of your finances and achieve your financial goals.
For more info on maintaining a great credit score listen to Episode 12 of the Rich State of Mind Podcast.
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