A credit score is a numeric summary of your credit history, a commonly used method for lenders to predict how credit-worthy you are, and how likely you will repay any loans they make to you on time.
In really simple terms; people who pay their bills on time will have higher credit scores than people who pay their bills late or not at all.
Your credit score is calculated based on your credit history, which comes from the three main bureaus – Equifax, Experian and TransUnion. They’re the ones that create these reports that will then be used to calculate your score using credit models like FICO and VantageScore. Factors include your payment history, credit utilization, length of credit history, credit mix and new credit.
There are no exact cutoffs for good scores or bad scores, but there are guidelines for each. Most lenders view scores above 720 as ideal and scores below 630 as problematic.
Consumers are becoming more aware of how raising their credit score improves their financial outlook.
We will be outlining tips you can do to improve your credit score.
1. Review Your Credit Report Routinely
You will likely want to get an idea of where your credit stands. Mistakes may not be common but if they’re on your credit reports, they could negatively affect your credit scores, so it’s important to monitor your credit reports for errors.
Get a free credit report from each of the three credit reporting agencies Equifax, Experian and TransUnion, once a year at annualcreditreport.com.
You are entitled to one free credit report a year from each of the three reporting agencies and requesting one has no impact on your credit score. Review each report closely an dispute any errors that you find. This is the closest you can get to a quick credit fix.
Look out for errors that lower your credit score and take action to correct them. Review the negative factors in the report and work on improving them, such as paying bills on time or reducing debt.
Notifying the credit reporting agency of wrong or outdated information will improve your score as soon as the false information is removed. About 20% of consumers who identified mistakes saw their credit score increase.
2. Set Up Payment Reminders And Pay Up On Time
Bank loans and credit cards aren’t the only thing that affect your credit score. Your electricity, internet and phone service providers among others are also credit providers. And, they’ll report delinquent accounts to credit bureau.
Always make at least the minimum payment by the due date. You can set up payment reminders and automatic payments within your accounts so you never accidentally miss a due date. Just make sure you have enough money in your accounts to cover your bills.
Missing your payment deadlines on a few bills is a quick way to tarnish your credit score. It will indicate that you are not reliable when it comes to on-time payments, so you do need to pay them on time.
Write down payment deadlines for each bill in a planner or calendar and set up reminders online. Consistently paying your bills on time can raise your score within a few months.
3. Contact Your Credit Provider Or A Financial Counsellor For Assistance
If you are finding it difficult to manage your repayments or bills, you can ask your credit provider or service provider for financial hardship assistance. You might also want to contact a financial counsellor for help. Financial counsellors provide a free, independent and confidential service, and they can help you with things like developing a budget and negotiating with your creditors.
4. Contact Your Creditors
Unable to meet up with paying your debt, contact your creditors and do not leave them in the dark, do this immediately to set up a payment plan if you miss payment deadlines and can’t afford your monthly bills. Quickly addressing your problem can ease the negative effect of late payments and high outstanding balances.
5. Limit New Credit Requests
Opening several new credit accounts in a short time frame can lower your score.
Only apply for new credit when you actually need it and not simply to boost your available credit.
You bring down your score if you apply for or open several new accounts in a short time.
6. Don’t Close Unused Credit Card Accounts
Closing unused credit card accounts reduces your available credit and can lower your credit score. Keeping them open and unused shows you can manage credit wisely. And think twice before closing older credit card accounts, because a long credit history improves your score.
7. Be Careful Paying Off Old Debts
If a debt is charged off by the creditor, it means they do not expect further payments. If you make a payment on a charged off account, it reactivates the debt and lowers your credit score. This often happens when collection agencies are involved.
8. Consider a Debt Consolidation Plan
There could be a temporary drop in your credit score if you enroll in a debt consolidation program, but as long as you make on-time payments, your score quickly improves and you are eliminating the debt that got you in trouble to start with.
9. Pay Attention to Credit Utilization
Your credit utilization rate is the amount of revolving credit you’re using divided by the amount of revolving credit you have available. It makes up 30% of your credit score and is often the most overlooked method of improving your score. For most people, revolving credit just means credit cards, but it includes personal and home equity lines of credit as well. A good credit utilization rate never exceeds 30%.