Everyone has a credit score as long as you have a bank account and bills. Your credit score determines your reliability to reimburse your debt after securing a loan. Organizations take credit scores quite seriously and check them every time you apply for a loan, job, or mortgage. Your credit score is evaluated for basically anything money-related. As you go on in your finances, your credit score is bound to experience changes. However, there are methods to improve your credit score and secure the funding you need.
The article will provide the best steps you need to know to boost your credit score.
Evaluate your Credit Report
Errors in your credit report can affect your credit score. Statistics show that every 1 in 5 credit reports contains errors.
Regular review of your credit report allows you to identify any possible mistake on your report and file a dispute letter.
You are entitled to a free credit report from the three primary reporting agencies. This report contains details of all your financial transactions. It includes your credit account history, public records, personal details, and credit inquiries. Lenders often use this information alongside your credit score to access your eligibility for loans and mortgages. You also have the opportunity to request your credit report for personal evaluation. This request has no impact on your credit score and allows you to identify possible errors in your reports. Common credit report mistakes include a wrong phone number, misspelled name, wrong address, mistaken identity, or wrong accounts. Some mistakes have more impact on your credit score. These errors include:
- Accounts with false records of debt payments as either late or unsettled
- Recurring Debts
- Accounts with false balance or credit limit
- Closed accounts are still listed as open
If you notice any inaccurate information in your credit report, you can file a dispute letter to the appropriate credit reporting authorities by mail only. Equifax, TransUnion, and Experian are the three major credit bureaus.
Your credit dispute letter should contain details of the erroneous information you would like them to correct. You should also attach copies of your credit report to back up your findings.
Once you have filed a credit dispute letter, the credit bureau will look into the case within 30 days and offer a response. However, It may take a total of 45 days for the error to be resolved. The process is worth the wait nonetheless, especially if you are planning on securing a loan. But if you want a faster response, other private companies offer to eliminate errors from your credit report. Informing credit agencies about an error in your report will increase your credit score when the negative item is eliminated.
Pay on Time
One major tip to improve your credit score is always paying your debt early. Your payment history is one of the most vital aspects that A good payment history improves your credit score and sets you up for future financial settlements. Whether applying for a loan, mortgage, or home loan, lenders always demand a good credit history. You should consider a debt settlement plan if you have a poor payment history. For accounts in collections, debt settlement or the “pay to delete” method is an effective way to eliminate negative information that may affect your credit score. It is also one of the cheapest methods of clearing debts, improving your payment history, and increasing your credit score.
Lenders can report payments at least 30 days late to credit bureaus. This action can negatively affect your credit score and make it difficult to secure future loans.
We advise you to set up a strategic payment plan to help you beat the deadline of your debt payments. Set up reminders to help you meet the payment deadline. Your consistency in paying your bills will create a good credit history.
You can also decide to pay your debts before the next billing cycle if the funds are available. This move generally boosts your credit score.
Also, it is advisable not to close old unused credit card accounts with good history. Good long-term duration of your credit history is very important as it holds past financial details that lenders find useful. Having a long history of on-time payments also positively impacts your credit score.
● Carefully Examine all Your Debts
Once a creditor clears a debt, they do not expect any payment. So you must avoid making any payment on a charged off credit card or account. Making any reimbursement on a charged-off account will only relist the debt as an active account and reduce your credit.
● Eliminate Late Payments
If you have records of late payments or an unpaid collection account, you have the option to delete such an account. There are collection agencies that take care of these negative items. However, the services of these agencies do not come for free and often require a fee up-front.
You can also write a goodwill letter asking your creditors to erase the negative account in your credit report.
Track your Credit Utilization
Your credit utilization plays a big role in your credit score. Many people do not realize the impact of credit utilization on their credit score. Credit utilization is the percentage of the debt you owe and the calculated ratio of your pending credit card balances to your credit card limits.
Calculating your credit utilization is pretty simple. All you have to do is divide your credit card balance by your credit limit, then multiply the outcome by 100.
A low credit utilization percentage is a positive result as it indicates that you have utilized just a small amount of the credit charged to you. You should set up balance alerts to notify you once your balance passes a certain credit limit.
Your level of debt or credit utilization greatly influences your credit score. The standard credit utilization percentage must not exceed 30%. So try not to use more than 30% of the credit limit extended to you. For example, if you have a credit limit of $3000, you must not use more than $900. You can request an increase in your card limit to maintain a healthy credit utilization percentage. For instance, if you have a credit limit of $10,000 and you’ve spent $6000, your credit utilization percentage would be 60%. You can ask your creditor to increase your card limit to, say, $30000. This increase in your credit limit will give you a credit utilization score of 20%.
Maintaining a good credit utilization rate will boost your credit score.
Reduce Frequent Application for New Accounts
Each time you open a new account, the credit bureau will receive a notice and make a “hard inquiry.” These consistent inquires can hurt your credit score in the long run. Although new accounts help build your credit file and portfolio, you need to reduce the number of credit applications you place to help your credit score. The duration of your credit file and history decreases as you apply for new accounts. While these factors do not have a large impact on your credit score, you still want to take note of these little details.
Conclusion
There are many misunderstandings about credit scores and how to improve them. Many factors can negate the improvement of your credit. However, you will have no problem improving your credit score with these tips.
