Improve credit score is one of the best ways forward to improved financial health when you’re applying for a mortgage, a car loan, or just shopping for better interest rates on credit cards. Here are 10 practical ways to quickly and powerfully boost your credit score.
1. Pay all bills on time, every time.
Of the factors that affect your credit score, there is one huge factor in your payment history. Payment history is always better when you make timely payments. There are several things you can do to ensure timely payments.
Action Step
Enroll in a payment plan or schedule payment reminders to never miss a payment.
2. Credit Card Balances
Credit utilization is another factor. Credit utilization is calculated as your credit card balances compared to your credit limit. Make sure your balances fall below 30% of your available credit.
Quick Fix
To decrease your credit utilization, pay off your credit card balances in full each month, or as close to it as you can.
3. Keep old accounts Open
Credit age how long you’ve had credit is yet another factor that determines your credit score. Closing older accounts may negatively impact your credit score because, on average, your accounts will be younger.
Smart Step
If you have unused old cards for long, it is advisable to keep them by occasionally using them and settle them completely.
4. Apply for new credit only when necessary.
Every time you apply for credit it generates a detailed report that may lower your credit score. Applying frequently in a space of time may severely harm your credit profile.
Best Practice
Obtain new credit only when necessary, and try to limit the number of inquiries by conducting your shopping around for a loan in as short an interval as possible.
5. Check your credit report for inaccuracies.
Errors in your report-including false reports of late payments or accounts you never opened-will hurt your score.
Secret Tip
You are legally entitled to receive a free credit report annually from three major credit bureaus. The errors should be protested upon their appearance in your report, and you should be improving your score.
6. Become an authorized user.
If you can find a family member or friend with excellent credit, you could get authorized-user status on their credit card. You’ll share their good reporting.
Bonus
This works best when the owner of your primary account has a long history of on-time payments and low credit utilization.
7. Diversify Your Credit Sources
A smattering of credit types-including credit cards, auto loans, and mortgages-can have some positive effects on your credit score. Lenders like knowing you can manage a variety of different types of credit responsibly.
Quick Tip
There is no need to open new accounts, but the combination over time does help.
8. Pay off the highest balances first to save money and lower your credit utilization.
Paying off smaller balances can accelerate your score’s recovery.
Two Strategies
Balancing pay-down can be accomplished with one of two strategies. You can either use the “debt snowball” by paying off the smallest balances first or the “debt avalanche” by focusing on paying off high-interest debt.
9. Use a secured credit card.
If you have bad credit or are just building up your credit, a secured credit card would be in your best interest. You’ll have to place a deposit to get one of those cards, but it will start or rebuild your credit history for you.
Smart Move
Use the secured card to make small purchases and then pay the balance in full every month. That’s how you can help improve your credit score over time.
10. Don’t close unused credit cards.
Closing unused credit cards reduces your score because you reduce your ‘available credit’ and increase the ratio of how much you are using. Don’t close them, but let’s keep them open and active by making some small purchases that we can manage.
Easy Hack
Put a small recurring expense, such as a subscription service, on an unused card and set up auto-pay so they do not accumulate more debt.
Case Study: Sarah’s Credit Score Reversal
Problem Sarah scored 590 on her credit. She was still receiving penalty fees for late payments and her credit card balances remained high. For her to get the best home loans with low interest rates, she decided to work on reversing her credit score.
Action Plan Sarah put in autopay to all of her bills in order to prevent the chances of missing deadlines.
She reduced credit card balances below 30% of credit limits.
She reviewed her credit report and discovered an error in a late payment. She could actually challenge it successfully.
Father’s had no late payments. His credit card also added Sarah to his account as an authorized user.
Result After six months on this program, Sarah’s credit score increased to 680. That means she becomes qualified for a mortgage with an interest rate that would save her thousands of dollars throughout the course of her term loan.
Conclusion
Improving a credit score takes a significant amount of time, but it can be done in good times with the right strategies. If you make all your payments on time, reduce your credit utilization, and maintain old accounts open, then you can consider a major boost in your score. As demonstrated in Sarah’s example, even small steps can turn out to be huge successes, and thereby, you will have better access to loans and credit at favorable rates.