10 Tips and Strategies To Improve Your Credit Score
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Your credit score is a key indicator of how risky you are to lenders and creditors considering extending you a loan or line of credit. Because these entities don’t know you personally, all they have to go on is a review of your previous payment history and other related behavior.
FICO is the most commonly used credit score, so that’s what we will focus on here. Your FICO credit score will typically fall between 300 and 850 based on your credit history. Anything above 750 is considered excellent credit, but a score of 600 or below makes you a poor credit risk.
If your credit score isn’t where you would like it to be, there are some things that you can do to improve it. By implementing these strategies, you can reap benefits including lower interest rates on loans and the ability to secure higher credit card limits.
Tip #1: Pay Your Bills on Time
One of the best ways that you can improve your credit score is by paying your bills on time. In fact, payment history is one of the primary categories reviewed by the credit card bureaus when determining your credit score. It accounts for 35 percent of your credit score!
Payments that are delinquent (even if only by a few days) can have a negative impact on your credit score. It can be beneficial to set reminders if you have trouble remembering which bills are due when.
One way to do this is the old-fashioned method of writing the due dates on a paper calendar or using a helpful reminder app for bills and budgeting. The easiest option, though, is to set up autopay on your accounts.
By setting reminders for payment due dates, you are much more likely to pay bills promptly. Image Credit: danielfela via Shutterstock
Tip #2: Pay More Than the Minimum
Paying more than you owe each month on your outstanding debt balance can have multiple benefits, reducing your overall debt load and helping you to pay off balances faster.
If you have more than 1 debt balance (such as several different credit cards), making more substantial payments on 1 account while continuing to make at least the minimum payments on the others can help you to focus on reducing these balances 1 at a time.
Once you have fully paid off 1 balance, you can then focus on another, and so on until you’ve fully paid off all of your debts.
There are a few methods to paying off debt, so if you’d like to read about all the options, be sure to check out Which Credit Card Debts Are Best To Pay off First? [High Interest vs. High Balance].
Tip #3: Work on Paying off Debt (Rather Than Just Moving It Around)
One of the other significant factors in determining your credit score is the amount of money that you owe compared to the amount of total credit available. Your total credit available is known as your credit utilization.
It’s best if you aren’t at or near your overall credit limit on your card(s). Utilization refers to how much of your available credit you’re using. It includes the percentage of each credit card, as well as the percentage of total available credit.
Lenders and creditors pay close attention to a borrower’s utilization ratio. Borrowers with a high utilization rate are, on average, less likely to pay back what they have borrowed. Alternatively, someone with a low credit utilization rate will likely have a higher credit score.