Your credit score remains a critical aspect of your finances. In most cases, it reflects whether you are thriving financially or not. When it’s time to get a mortgage, car insurance, or even pay for a new apartment, good credit is seen as a major determining factor.
However, learning how to improve your credit score over time can be challenging. This is why I have done some research and tapped into my wealth of experience to share insight into how you can build credit like other successful families in the US.
You’ll be learning practical tips and strategies for managing your finances in a way that will improve your credit within the next few months. Don’t hesitate to take advantage of any of the ideas discussed here.
What Is A Good Credit Score?
A good credit score is expected to show your credit behavior in a way that puts you in a good light before creditors. It shows how you’ve been able to successfully pay back loans on time. A credit score of 720 or higher is usually considered a very good remark.
How Long Does It Take To Improve Your Credit Score?
Your credit score can begin to get better between 30 to 90 days. By making all your monthly debt payments on time and avoiding unnecessary loans, you can start building good credit. Notwithstanding, it takes years to eventually have an excellent score.
4 Benefits Of Having A Good Credit Score
Knowing how to improve your credit score isn’t just some formality advised by financial experts. It actually has some amazing benefits you would need in the long run. Here are some reasons why you should build a good credit score:
1. Having A Good Credit Score Helps You Get Better Rates On Car Insurance
Most car insurance companies usually need to examine your credit scores to determine if you are eligible to apply for coverage. Besides, the CFPB has repeatedly explained that insurance carriers use one’s credit to approve one’s application and how much is being charged.
As a customer, your credit score will be checked to decide if your application should be denied or considered. If you intend to insure your car in the future, it’s time you start learning how to improve your credit score.
2. Having A Good Credit Score Helps You Qualify For Lower Interest On Credit
Some years ago, I applied for a credit card. Before anything, the card issuer checked my credit to see if I’ve been maintaining a good score. Thankfully, my credit was impressive. My request was approved as soon as possible and I was eligible for a lower Annual Percentage Rate (APR).
An APR is the interest you pay for borrowing money. When you have a healthy credit score, most credit card companies will likely reduce your APR. This will also help when upgrading or applying for a new credit card.
3. Having A Good Credit Score Helps You Get Utility Services More Easily
Your credit score can make it easier to set up accounts for utilities like electricity and internet. According to the Federal Trade Commission, households in the US with good credit history tend to get access to utility services faster than families with poor credit scores.
On the other hand, some utility companies may not make security deposits compulsory when your credit history is impressive. Basically, they know you are financially stable enough to pay on time. This is one reason you must be willing to learn how to boost your credit score.
4. Having A Good Credit Score Helps You Get More Housing Options
You have to be intentional about where you call your home. This is because where you live can have a great impact on different areas of your life; family, work, business, etc.
Now, when you don’t have a good credit history, finding a suitable apartment may be very difficult. Most landlords are reluctant to give their apartments for rent if they think your credit score is poor. They would simply assume that you can’t afford to live in the apartment.
This limits your bargaining power and leaves you with very few options.
10 Quick Ways To Improve Your Credit Score
You have probably made some financial mistakes in the past that affected your credit score. However, it is not too late to make things right. Here are 10 basic ways to build a high credit score:
1. Pay Your Bills On Time
Paying your bills on time is one of the most important things you can do to improve your credit score. Interestingly, your payment history is one of the first categories that is being looked at to determine your credit score. This is because it accounts for 35% of your credit score.
When you are unable to pay your bills at the time you ought to, it will definitely have an impact on your credit. Ideally, I would advise that you set reminders if you struggle with remembering when bills are due.
You can either mark your calendar or make things much easier by using a money management app.
2. Pay More Than The Minimum
If you are in debt, making your minimum payments every month won’t be easy. This requires a good level of self-discipline and focus. However, if you are earning enough money to pay more than the minimum, you won’t only reduce your debt load faster, but you will improve your credit score over time.
Mind you, this doesn’t mean you have to pay more than the minimum on all your debt balances. That would be a very difficult feat. Instead, focus on paying a more substantial amount on one account while paying the minimum on other balances.
3. Check For Incorrect Information On Your Credit Report
This is something you must look out for since you want to learn how to improve your credit score. Ensure that every credit report you receive is accurate and up to date.
It is important you know that the median credit score in the US is 711. This is one of the key pieces of information you have to keep in mind as you try to boost your credit score and then obtain reports.
If you want to get accurate reports of your credit history, there are various online services you can use. Among other things, these services would offer credit monitoring and identity theft protection.
Each time you get a copy of your credit report, painstakingly examine it and ask questions if you don’t understand anything you’re paying for.
4. Work On Your Debt-To-Income Ratio
Your debt-to-income ratio (DTI) is a personal finance measure that shows the relationship between your debt and income.
Creditors use this information to determine if you are able to manage your monthly income while paying debts. What this means is that you must ensure that your income is more than enough to make your monthly debt payments and also cover other bills.
The moment you start struggling to pay off debt every month, it could mean that your DTI is low. This deteriorates your credit score and makes you a high lending risk. No lender would be willing to loan you money.
5. Have A Balanced Mix Of Debt
There are different types of debts including mortgage loans, credit cards, car loans, student loans, and retail and station gas credit cards. According to the Fair Isaac Corporation (FICO), consumers having a mix of credit types tend to build a better credit score than those who don’t.
Now, this is beneficial provided you are making your payments on time. It simply shows that you are able to manage different types of debts successfully, hence, giving you an impressive credit history.
For example, it is better to have $150,000 debt in credit card, mortgage, and car loan combined than having such an amount in just credit card alone. This is one of the best ways to improve your credit score.
6. Don’t Throw Your Credit Cards Away
Although this may sound illogical, it’s one of the quick tricks to improve your credit score. Having a long credit history helps a lender to have enough information needed to examine your creditworthiness.
Now, if you suddenly ditch your credit cards, you have simply shortened your credit history, and this could make lenders believe that you are unable to manage a line of credit for a longer period of time. Hence, just keep your credit card accounts open even if you are not actively using them.
Taking this simple step will help you retain a long credit history.
7. Don’t Apply For Lots Of New Credit
Even without being told, you should realize by now that applying for an abundance of new credit is certainly not a wise financial decision. You must avoid this mistake if you want to learn how to improve your credit score fast. This is because too many hard credit inquiries will plummet your credit score, especially when these inquiries happen frequently.
Besides, bear in mind that a hard credit inquiry and a soft credit inquiry are two different needs. You only make hard credit inquiries when applying for loans or credit such as a mortgage, business loan, car loan, student loan, credit card, or personal loan.
Soft credit inquiry, on the other hand, is concerned with things like background checks for employment or renting an apartment and credit prequalification. Soft credit inquiries don’t hurt your credit score.
8. Become An Authorized User
One of the overlooked ways to improve your credit score quickly is by becoming an authorized user on someone else’s credit card account.
If you haven’t done this before, here’s how it works. As an authorized user, the history of the credit account you use will appear on your own credit report. As long as the payment history is positive, it can significantly improve your credit score.
However, you must be very careful when using this strategy. If the account holder doesn’t pay their bills on time, it will reflect on your credit score. So, make sure that the account holder is financially stable and someone you can rely on to make timely payments on their bills.
9. Use A Credit Boost Service
Making timely payments on your credit card debt and clearing your student loan balance are not the only steps to improve your credit score. You can also help your situation by using a credit boost service like Experian Boost.
This company helps you to accurately report your monthly bill payments to the credit bureaus. This means the credit bureaus will consistently receive the credit information that reassures them that you are doing well with your finances.
10. Get A Credit Builder Loan
A credit builder loan is another great opportunity to consider if you want to learn how to improve your credit score.
This method works by you making monthly payments into an interest-bearing certificate of deposit (CD) for about two years. As you make these deposits unfailingly, the bank would routinely report your monthly payments to the credit bureaus.
However, this might not be the best option for your financial situation if you’re on a low income. You actually need to have some spare cash you can rely on throughout the loan term.
4 Tips To Keep Your Credit Score Healthy
Even as you take a bold approach toward building an excellent credit history, you could still struggle sometimes to keep up. To help you pull this off, here are some good tips to boost your creditworthiness:
1. Reduce Your Credit Utilization Ratio
Your credit utilization ratio plays a very significant role in building a good credit score. It is the amount of credit you use divided by the total amount of credit you have in your account.
For example, if you have a total of $50,000 on your credit card, and you make a one-off payment of $10,000 from that balance, your utilization is 20%. That’s pretty high. Ideally, your goal is to minimize your spending as much as possible to have a low credit utilization ratio. I would advise that you keep it below 10%, if possible.
This is one of the basic tips to boost your credit score fast.
2. Request Credit Limit Increase
Requesting an increase to your credit limit can sometimes help your credit score. This is because when your credit limit increases, your utilization ratio reduces.
The trick here, however, is to ensure that you maintain the same cautious spending habit you had with the previous spending limit. You don’t have to increase your spending simply because your credit limit was increased. That would only make your financial situation worse.
Besides, don’t apply for an increase on a new credit card. Many companies will decline your request if your credit is new.
3. Pay Off Cards With The Highest Balances First
Aside from reducing your spending, paying down credit card debt with the highest balance first is one of the things you can do to improve your credit score.
When you use several credit cards, it’s best to put more effort toward paying off the highest card balance since it reduces your credit utilization ratio. Don’t forget that this is a factor in your credit score used by many lenders. Besides, clearing your highest balance on time will improve your debt-to-income ratio.
4. Have Different Credit Accounts
It’s important to borrow money only when you need it. However, having various credit accounts can indicate that you are good at managing credit responsibly.
You can have a line of credit, auto loan, and mortgage. Each of these accounts will benefit your credit score. Also, when you complete any of these payments on time, you can easily qualify for a similar loan in the future.
For example, if your credit score reveals that you were able to pay your initial car loan without any delay, no company would be reluctant to grant your request for another car loan.
Quick Summary: How To Improve Your Credit Score
Millions of people in the US are in debt, but that doesn’t mean all of them are struggling financially. For some households, borrowing money and building a high credit score is quite important. They do this to be financially secure, especially for the future. You never can tell when you will desperately need to get a loan.
By learning how to improve your credit score, you too can be on your way to creating a financially stable future.
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