Improving your credit score might be essential if you want access to better financial products in the future. But taking the right steps to grow your credit score in the right direction can be tricky, especially if you are not sure where to start.
Boosting your credit score includes understanding what impacts it, and what lenders view favorably and unfavorably when it comes to debt. No matter your reasons for wanting to improve your credit score, keep these tips in mind to get started.
Understanding What Impacts Your Credit Score:
How is credit score calculated? This is one of the most important things to understand when you want to improve yours. Your credit score is calculated by looking at several different factors, including the level of debt that you are in, the level of debt that you utilize, and your ability to make payments on time.
Even if you always make repayments on time and have never missed one, your credit score might still be reduced if you take out a big loan or a credit card with a high limit. Similarly, even though you might make the minimum payment to your credit card each month, if the card is maxed out and you are utilizing all of it, your credit score could see a drop from this.
This is because it informs lenders that you’re dealing with a high level of debt right now and may run into issues if you were to take out more.
Make Payments on Time
The easiest way to get started with improving your credit score is to make your payments on time. Set up automatic payments and track when they are due to reduce the risk of forgetting to pay.
Most banks and lenders offer the option for you to set up an automatic monthly payment to them.
Reduce Your Debt
Reducing your debt can also have a positive impact on your credit score. You can do this with several strategies, but one of the most popular is to pay extra towards the smallest debt first until it is fully repaid.
Then, you can begin to tackle the next debt up in size by using the money that you were previously paying to the debt that is now cleared. This is called the debt snowball method and can help you get debts paid off faster when done right.
Use a Credit Card Wisely
While a credit card can be the easiest way to ruin your credit score, you can also use it to improve your score when you use credit wisely. If you have a credit card that has money available to spend, i.e., it is not maxed out, then try to make sure that there are always funds available to show that you are not utilizing all of your credit.
Ideally, you should only use 50% of your credit card limit at one time; make sure that you’ve repaid all or most of it before you use your credit card again. Some people use a credit card for essentials and repay in full every month to improve their credit score.
With these tips, you can get started with getting your credit score to where you want it to be.