With increasing costs and the need to purchase expensive commodities, the lifestyle today has become extremely pricey and difficult to maintain. In this case, having a monetary emergency, such as a medical bill or extensive house repairs is the last thing you want. If you possess near to no savings, it would be a difficult situation for you unless you are willing to take a loan. But again, loans are difficult to be approved, especially when you have a bad credit score.
Carrying a high credit score is extremely essential, even if you do not want a loan, because it increases the value of your financial records. A high credit score will not only benefit you in getting the lowest interest rates while getting a loan, but also help you in getting the best credit card deals. So if you are running low on your credit score, and if that loan can wait, it is better to improve it to save on the extra interest rate and get the best deals possible.
Here are a few tips on how to improve your credit score:
Pay off your debts and bills
The first step is to start paying off your debt. As soon as you start clearing your dues, you will see your score rising up rapidly. The debts can include loan installments or even monthly bills. If you have delayed paying your bills on time and always tend to miss the deadline, your credit score can be affected as much as 35%, which is a lot.
Lenders use a factor called FICO credit scores, which are used to determine whether you are eligible for a loan or not, depending on your credit score. It gives 35% of assessment weight to your payment history, 30% to your credit history, 15% to your credit accounts, and the remaining to credit mix and inquires. And when you start looking for the right type of lending to suit your situation, the FICO scores will be assessed first. Since payment history has the highest weight, you need to start by managing it, to begin with.
To pay your dues on time, you can use reminders through apps or request your bank to set up one for you through the online portal. You can also have the option of automatic debit transactions every month which will cut the payments from your account without you having to remember all this information every 25 to 28 days.
The advantage in your case is that even if you missed timely payments in the past, your credit score won’t stay low forever. As soon as you start paying them on time, your score will cease to be frozen and start going up. Even if you have a problem and are unable to pay your bills and debts on time, you should contact your lenders and bank to offer you a better way to manage your finances that will somehow pay the bills and carry out your monthly expenses.
Keep credit card bills low
Now that you have managed to pay your bills on time, you need to make it a point to keep your credit balance as low as possible and purchase things only if absolutely necessary. A term known as the credit utilization ratio is used to calculate and estimate your credibility regarding the score. This approach is taken by considering your credit card balances, totaling them and then finally dividing them by your credit limit. The lower the credit utilization ratio, the better the chances are for you to get a loan from the credible lenders. A ratio of 30% and lesser is considered to be good. It gives the lender the assurance of you paying back the debt on time and managing all your credit extremely responsibly. You can request your lender to increase the credit limit. This can either be done verbally, through a phone call or requested online by updating your annual household income. This will help you to manage your credit card bills and keep them low.
Do not go on opening new accounts unnecessarily
Do not close your existing unused credit card account because if you do, it will increase your credit utilization ratio, which is not advisable for maintaining a low credit score. Also, opening new credit card accounts can also decrease your credit score because it will set too many hard inquiries in your credit record. It will further add up to accumulating more debt, making the situation worse. Even though the effects due to hard inquiries will go away over time (usually 6 to 12 months), they will keep their mark on your credit report for over two years, blocking your score from rising up rapidly.
Score boosting programs
Score boosting programs is useful for gathering financial information along with enhancing a thin credit file. You can choose any suitable program to access your bank and saving accounts, your payment history, and online banking data to thoroughly look into and calculate your credit score. This avoids errors and ensures you are aware of your status all the time.
Keep track of your credit
Keeping an eye on your credit report and credit score frequently can help in avoiding errors and also identity theft in a few cases. Viewing your credit report now and again will not affect your total score because it will only include a soft pull and not a hard pull in your report. You are also more aware of how well you are managing your scores and what needs to be changed in order to increase it. You might see a few fluctuations occasionally, but as long as you are mindful, you will have full control over your score.
All this sums up to be a very simple formula for increasing your credit score, which is, pay your bills on time, keep your credit balances low, track your credit report almost every month, and do not apply for loans until it is an emergency. Keeping these factors in mind will definitely result in a modest credit score, which will keep you financially stable and satisfied. Lastly, be patient! Getting that credit score up will take some time, but it will definitely happen if you are consistent.