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Top 5 tips on improving your Credit Rating

Top 5 tips on improving your Credit Rating - featured image on the blog

A healthy credit score is essential. It can determine whether you get a store credit card or a landlord will rent to you. It can even affect your job prospects. Your credit score is primarily determined by whether you pay your bills on time, but other factors such as the amount owed and your credit history also play a role.

It is important to distinguish between your credit score and your credit report, even though they’re linked. Your credit score is between 300 and 850 that summarizes all of your credit report information. Creditworthiness increases with the score; the “good” range starts at 670. According to the credit bureau, 67 percent of Americans have good or better ratings. The most widely used credit scoring system is FICO (Fair, Isaac, and Co.). Comparing scores from different sources that use the same range should yield similar results: Differing by 20 points is normal. If one score is significantly lower than the others, it may be due to credit report issues.

Here are five techniques to improve your credit rating:

Pay on time. Always.

The most crucial factor in FICO and VantageScore is how you pay. Either set up a reminder app on your phone or better yet – enroll for automatic payments. Your on-time payment goal includes utilities, rent, and cell phone service. Even if you’ve had a bad scrore, negative items tend to fade away after two years; be patient, keep paying on time, and you’ll soon have an improvement on your credit score.

Increase your credit usage ratio.

Credit utilization is an important factor that impacts your credit score. Credit utilization compares credit card balances with the credit limit on a card. Credit utilization should be kept below 30%. This should be done both for each card you own and your total credit utilization ratio. The best ways to improve your credit utilization ratio are to reduce the numerator (debt) and manage the denominator (maintaining or increasing the amount of credit available).

Credit reports can have errors and impact your scores negatively – keep a tab on them

Identity theft and misreporting can quickly derail your credit score. Upgrade Credit Health offers free credit scores, monitoring, and education tools. Checking the credit report – typically once a year – from each central bureau (there are services which give them out for free) is once this you can do to check yours. If you find an error on your statement, dispute it in writing to all three credit bureaus (Experian, Equifax, and Transunion). Disputing an incorrect payment will not affect your credit score if you have a history of undisputed late payments. However, a credit reporting agency typically investigates a dispute within 30 days, and the benefit to your score can be immediate.

Plan your new debt and account closures.

Credit scoring models look at your total credit card and loan balances. Generally, reducing debt helps your credit score. When applying for new credit or loans, lenders will run a “hard inquiry” on your credit history. If there are instances of multiple hard inquiries on your file, it may indicate you’re in too much debt. However, you should not be afraid of taking on new debt if the circumstances warrant it. After all, you want to build good credit so you can get good loans (like a low-interest mortgage when you want to buy a house). Your credit score should remain stable as long as you continue to show that you are a responsible borrower who pays on time. Consider carefully closing an old account. Having a balance helps your credit utilization ratio, as does having older versions on your report.

Credit mix

Credit mix refers to your source of credits. Mixing you credit basket with some easy credits help your credit score. Credit card debt, secured loans, and personal loans are often factored into scoring models. If you need to diversify your credit mix, consider a low-interest loan (like an auto loan) that can be paid back on time. If you haven’t used a credit card in a while, consider getting one, charging a small amount monthly, and paying it off.

Remember that credit utilization and on-time payments are paramount.

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