5 Tips for Improving Your Credit Score

Once you become an adult, improving your credit score can be really useful to many things you may do in your life.

The fact is, your credit score is a crucial financial metric that will follow you in every credit related transaction you want to do through your life.

From securing a loan to determining the interest rates you pay this is the kind of thing you use your credit score for.

Whether you’re aiming to boost your credit score for future financial endeavors or looking to maintain your already favorable standing, today we are going to talk about practical tips to guide you on the path to improved credit health.

What is the credit score?

A credit score is a three digit number, that typically ranges from 300 to 850, and it exists to show your creditworthiness based on all the information from your credit reports.

And these reports are compiled by credit bureaus such as Experian, Equifax and TransUnion. These reports are a lot of detailed information about your payment and purchase history, amounts that you owed and much more.

Lenders, such as banks and credit card companies, use credit scores to assess the risk of lending money or extending credit to an individual. The score is generated based on the information found in a person’s credit report.

Your payment history impacts on 35% of your credit score, they take into consideration if the payments were made on time, if they were late, can negatively affect your score.

The credit utilization can affect 30%, counting with the current credit card balances and the use you have, the higher the utilization the better.

The third point taken into consideration is the length of credit history, so the average age of all your credit accounts. Longer credit histories generally have a positive impact.

Other parts that impact only 10% each are the types of credit in use and new credit you acquire from opening new accounts.

5 tips for improving your credit score

Improving your credit score is a gradual process that requires consistent financial habits.

So to help you with this matter, we will see some tips that can be really helpful if you want to start improving your credit score.

1 – Check Your Credit Report Regularly

Regularly monitoring your credit report helps you identify and address any errors, inaccuracies, or signs of potential identity theft promptly.

You’re entitled to a free annual credit report from major credit bureaus, so take advantage of this opportunity to stay informed about your credit status.

Correcting these issues is crucial for ensuring the accuracy of your credit score, avoiding possible consequences for your credit.

2 – Prioritize on time payments

The best friend of a good to excellent credit score, is the on time payments, timely payments of bills and credit accounts are crucial to maintain a positive credit history.

But sometimes we can forget the due dates and impact or credit score by mistake, to help you with that you can set up automatic payments or use reminders to ensure you never miss due dates.

You can also create a monthly budget destined to these payments that need to be done for upcoming bills.

3 – Catch up on past due accounts

If you have accounts that are past due, prioritize catching up on payments. They are already impacting negatively on your credit score so you should pay them to stop decreasing your score.

Contact creditors to discuss repayment plans or negotiate terms if necessary. Bringing accounts current demonstrates your commitment to fulfilling financial obligations.

4 – Keep your credit card balances low

Maintaining low credit card balances is a key practice for a healthy credit profile. So the credit bureaus will compare the amount of credit you’re using to the total credit limit you have.

And this is a crucial factor that influences your credit score, so if they are low you are already stepping towards improving your credit score.

High credit card balances relative to your credit limits can suggest financial strain and may lead to a lower credit score.

5 – Avoid opening unnecessary credit accounts

Opening multiple new credit accounts in a short period may be viewed as risky behavior if you want to start improving your credit score. Only open new accounts when necessary and manageable.

Each time you apply for a new credit account, a hard inquiry is typically made on your credit report. While a single inquiry has a minor impact, numerous inquiries within a short period can negatively affect your credit score.

And managing multiple credit accounts can be complex, with a lot of different due dates, credit limits and terms.

Remember that improving your credit score is a gradual process, and consistency and practicing is the key to achieve a good or even excellent credit score.

Daniel 6 de September de 2024