How to Improve your Credit Score
There is a high probability that you will have to borrow money at some point in your life. The reasons can be different: tuition, buying a car, buying a house. Whatever the reason, a credit score will affect your ability to borrow money and will especially affect your interest rates. Fortunately for you, we have prepared some tips that can help you improve your credit score.
First of all, you need to make sure that your credit reports are accurate. One study found that errors in credit reports were found in as many as 26% of cases.
The next step is to understand your risk factors. This is very important so that you know where there is room for improvement. Certainly, you will not be able to fix everything, but the more improvements – the higher the credit score!
The thing you may not have known to affect your credit score is paying your bills on time. In fact, this is very important, because it affects as much as 35% of your FICO credit score. This is called a payment history.
Another very important thing that affects the 30% FICO credit score is credit utilization. That actually represents the amount of debt. The goal is to achieve the lowest possible utilization ratio. How is that calculated? If your account balance is $ 3,000 and the limit is $ 10,000, then your utilization ratio is 30%. Although it is recommended that the utilization ratio should be below 30%, for the highest credit score, it is advisable to keep your utilization ratio below 10%.
Do you think that you can avoid these problems by simply not having a credit card? In fact, using a credit card wisely can have a very positive effect on your credit score. If you use a credit card and pay on time each month, you build a positive payment history. In addition, if you keep credit card spending to a minimum, you’ll have a low utilization ratio. This way, you can improve your credit score on things that together make up as much as 65% of your FICO credit score!
The rate shopping is something that should also be taken into account because FICO scores ignore inquiries made 30 days before scoring. This means that you need to plan ahead and focus your purchase window because then the impact on the credit score will be minimal.
Every time you apply for credit, the creditor will run a hard credit check. Each check deducts one to five points from your credit score. That is why it is important to think carefully about whether you really need credit at that moment, because it will affect your credit score, which can create problems for you in the future.