Credit rating is (or will be) an important part of your finance related activities. More precisely, it plays an important role when you want to be approved for a loan, especially a larger amount of loan such as the mortgage. Thus, not paying attention to your credit rating can have adverse effect on your future plans to purchase something using a loan. Credit rating is used by lenders as one of the tools in the decision making process. They are deciding whether or not you will be approved for loans you have applied for. In addition, to a certain extent, the terms for your loan are defined by your credit score. There are number of reasons why you should maintain a good credit score. For instance, you can benefit from a higher credit score in terms of lower interest rate. Thus, in case you have a lower credit score, you should know couple of ways on how to improve credit score.
You should keep in mind that there are couple of things which should be taken into account when looking for ways on how to improve credit score. You should pay attention to your debt level, credit cards, the age of your accounts, as well as your spending habits. Credit cards can be utilized in couple of ways when trying to improve your credit score.
Own a credit card
If you don’t have already, you should go and get a credit card.. Having a credit card can help you build your payment history, and your credit score. Keep in mind that you will improve your credit score only if you are using your credit cards in a responsible manner. This means that you should not dry out the available credit and you should always pay your bills on time.
Pay attention to credit card balances
Be aware about the credit balances in terms of credit utilization ratio. This means that you should not use the entire revolving credit available on your credit cards. In terms of the credit utilization ratio, the lower the ratio the better it is for your credit score. A credit utilization ratio of 30% or lower is preferred. For instance, if you have a credit card balance of $2000 and your credit limit is $5000 it means that your credit utilization ratio is 40%. This value of credit utilization ratio might have negative impact on your credit score. In order to increase your credit score, you can make an effort to repay your outstanding balances.
Start using your credit card(s)
You should know that using your credit card is another way to boost your credit score. Overusing your credit card limit is not advisable when you are trying to build up your credit score. At the same time, not using your credit cards can have adverse effect on your score. Not using your limit means that you do not have a payment history to show. Thus, lenders are not able to analyze your behavior. But this doesn’t mean that you should have outstanding balances o all of your credit cards (if you have more than one credit card).
Pay back unnecessary balances
You should payback the balances on credit cards which are not used on a daily bases.. Meaning that, you should try and use one of two credit cards for your everyday needs and purchases. This way you will not overflow your credit report with different balances.
How to improve credit score are, additional tricks:
Old debt can help you
Old debt can be a beneficial item when trying to improve your credit score. Most of us are rushing to erase the debt form our credit report after we pay back the debt in full. In some cases, this is not a smart thing to do. This is especially true if you have paid back the debt on time without any late payment. If you have paid off your debt on time, it will be a positive item on your credit report. It will show that you are a responsible person, finance wise. In addition, you are showing a long credit history. Try to maintain the good debt (one paid on time in full) on your credit report as long as possible.
Make sure that you don’t close your old accounts. As with the good debt, you should not close down your older accounts. The older the account the better for your credit score. As it was the case with your old debt, an old account can have a positive impact on your credit score. In addition, don’t start opening numerous new accounts at once. Opening too many new accounts at once will decrease the average age of your accounts. Account age has a role in the calculation of your credit score. In most cases, the older the average account age you have, the better.
Check for errors
Your credit report may not be correctly updated, and some items may be still recorded on your credit report. Items such as debt paid on time but recorded as missed payment, repaid debt still recorded as outstanding debt, non-existing accounts, etc. All these mistakes can lower your credit score. For this reason, make sure that you have eliminate the possibility for errors on your credit score. Ensure that your credit score is up to date, and all mistakes are removed if you want to increase your credit score. You can check your credit report for free online.
Use a credit-builder loan
Objective of this type of loan is (as the name implies) to build your credit. It can be a rather useful method for improving your credit score. With the credit-builder loan you can build or improve your payment history which is one of the most important factor when calculating your credit score. When you are approved for a credit-builder loan, the money lent to you are kept by the lender. The money from the loan are kept in an account, and will be transferred to you after the loan is fully paid off. Yes, you will get the money from the loan after you pay back the loan. It can be considered to be a form of a mandatory savings program. Your monthly payments are recorded on your credit report. Thus, any miss payment would be also reported on your credit report. This means that you should pay your obligation on time if you want to increase your credit score.
Include a co-signer on your loan application
This method to improve your credit score can be used if you do not have enough time to build up your credit score, using some other credit improvement technique. When applying for a loan, having a co-signer will increase the chances of getting approved. Having a cosigner will help you in a numerous ways, but you should primarily understand what a cosigner is.
Benefit from paying rent
Renting a place might have positive impact on your credit score that is, as long as you are paying your bills on time. You can find a rent reporting services who will use a bill you are paying and record it on your credit report. This can provide the opportunity for building payment history.
Becoming an authorized user on someone else’s credit card can be beneficial for you if you are trying to increase you credit score. You can ask someone from your family or a close friend, to put you as an authorized user on his/her credit card. Becoming an authorized user will enable you to improve your credit score. That is, as long as the credit card issuer reports the activities on credit card by the authorized user to the credit bureaus.
When it comes to the question how to improve credit score, the best thing to do is not doing any actions or having a behavior which will decrease your credit score. Try meeting your financial obligations on time. Regardless of the belief that you do not need credit score so much, never say never, maybe in the future you would like to purchase something with loan, and get rejected. You should try and understand the different ways you can improve your credit score. Improving your credit score takes time, but it can be done in a year or so. The time to recover from bad credit score depends on ability to accept new financial behavior.