4 Ways to Improve Your Credit Score
Before we get started, I want you to understand that discussing credit scores can be a challenge. A credit score is calculated by applying a mathematical algorithm to the information that is provided to one of the three credit reporting agencies. Yes, that is just as awful as it sounds. You can spend all day trying to figure out how you calculate your score or how Equifax can be different than TransUnion, but the focus needs to be on the factors within all 3 credit reporting agencies that make your scores go up or down. In this blog, I will try to keep it simple, but also give you a few tips that you can use to help raise your credit score.
1) Pay your bills on time and in full.
This seems like an obvious statement, but improving your credit score is incredibly difficult if you don’t pay the bills that you currently have on time. One thing to keep in mind, when you settle with a debtor to pay less than you owe, it can negatively affect your credit score.
2) Control your balances on your credit cards
When I teach at the high school each year, I always tell them that credit cards are great to build your credit, but they also are an easy way to damage your credit. Lenders typically want to see the utilization rate on credit cards at 30% or less. What that means is if you have a credit card with a $5,000 maximum, you need to average $1,500 or less each month on that credit card. When you stay under that 30% utilization rate, you are helping your credit score. Anything above that number, could adversely affect your credit score.
3) Don’t apply for too much new credit
Be very cautious on how often you apply for loans/credit cards due to how often the lenders are checking your credit. Too many hard inquiries within a short period of time will hurt your score.
4) Be patient.
Your credit score doesn’t change overnight. If you find yourself trying to rebuild your credit, just be patient. Start working on improving the items on your report one at a time and make sure you properly manage any new debts in the future.
What if you don’t have a credit score at all?
The only way to generate a credit score is a debt that reports to a credit reporting agency. There are lenders in the world that do not report their information therefore, you do not actually build credit. Make sure you get started with an institution that reports your information so that you can get credit for what you are paying back.
-Brian Winston (NMLS#579136)