A credit score is one of the most important measures of a person’s financial health. It tells lenders at a glance how responsibly the person uses the credit. The better the score, the easier it will be to get approved for new loans or lines of credit. A higher credit score can also pave the way to get the lowest available interest rates when in need to borrow. If in need to boost a credit score, it takes a bit of effort and, of course, some time.
Here are the possible ways to boost a credit score.
1. Review credit reports
To boost a credit score, it helps to know what might be working in favor or against. That is where checking the credit history comes in. Factors that add to a higher credit score include a history of on-time payments, low balances on credit cards, a mix of different credit card and loan accounts, older credit accounts, and minimal inquiries for new credit. Late or missed payments, high credit card balances, collections, and judgments are major credit score disparagers.
2.Consider consolidating debts
If there are several outstanding debts, it could be an advantage to take out a debt consolidation loan from a bank or credit union and pay them all off. Then only one payment will be to deal with. If able to get a lower interest rate on the loan, there will be a position to pay down the debt faster. That can improve the credit utilization ratio and, in turn, your credit score. A similar tactic is to merge multiple credit card balances by paying them off with a balance transfer credit card. Such cards often have a promotional period during which they charge 0% interest on your balance. But there needs to be cautious of balance transfer fees, which can cost 3–5% of the amount of transfer.
3.Use credit monitoring to track progress
Credit monitoring services are an easy way to see how the credit score changes over time. These services, many of which are free, monitor for changes in the credit report, such as a paid-off account or a new account that is opened. Many of the best credit monitoring services can also help to prevent identity theft and fraud. For example, if an alert that a new credit card account is opening that has not been authorized and has been reported to the credit file, this can be contacted to the credit card company to report suspected fraud.
4. Aiming for 30% credit utilization or less
Credit utilization refers to the part of the credit limit to use at any given time. After payment history, it is the second most crucial factor in the FICO credit score equation. The simplest way to keep the credit utilization in check is to pay credit card balances in full each month. to always do that, a good rule of thumb is to keep your total outstanding balance at 30% or less of your total credit limit. From there can work can be done whittling that down to 10% or less, which is considered ideal for boosting a credit score.
Another way to improve the credit utilization ratio is to ask for a credit limit increase. Raising the credit limit can help credit utilization, as long as the balance does not increase in excess. Hard inquiries, however, can affect a credit score drastically for anywhere from a few months to two years. Hard inquiries can incorporate applications for a new credit card, a mortgage, an auto loan, or some other form of new credit. The occasional hard inquiry is not likely to have much of an effect. But many in a short period can damage a credit score.
The Bottom Line
Boosting a credit score is a good goal to have. Mainly if planning to apply for a loan to make a major purchase, such as a new car or home. Also, if you try to qualify for one of the best rewards cards available. It can take few weeks, and sometimes a few months, to see a distinguishable impact on a score when starting to take steps to turn it around. It may even need the help of one of the best credit repair companies to remove some of those negative marks. But the sooner in working to improve credit, the sooner there will be results.