Is your credit score telling you that your dream house will have to wait? Or having a new car isn’t in the horizon? That’s because most lenders - mortgage bankers, credit card companies, auto dealers - check your credit score before they approve of your loan. Using FICO scores which range from 300 to 850, they make sure your credit score is above the 580 range. Otherwise, your score is considered poor and getting loan would be tough. But don’t despair. Here are 6 ways to improve your credit standing.
#1 Check your credit report
Request one free copy of your credit report every 12 months from the 3 major credit bureaus - Equifax, Experian and TransUnion. Make sure to report errors, inaccuracies, and fraudulent activities on our credit report. According to Consumer Protection Finance Bureau the following are the common mistakes to watch for:
- Incorrect identity information, such as wrong name, phone number or address
- Accounts that belong to another person with the same or similar name to you
- Fraudulent accounts resulting from identity theft
- Closed accounts, such as credit cards or car loans, that are reported as open
- Incorrect late or delinquent status on accounts
- Repeat listings of the same debt
- Incorrect current balance or incorrect credit limit
Make sure to report to the credit bureau any mistakes you see on their report. Remember, negative information can affect your credit score so you need to take immediate action.
#2 Pay your bills on time
Your payment history makes up 35% of your credit score. Which means if you want to improve your credit score, focus on paying your bill on time, all the time. Autopay your bills so you don’t miss out on due dates.
#3 Keep credit utilization rate low
Aim for a 30% credit card utilization ratio. This means having a credit card balance that’s 30% below your credit limit. This tells lenders that you manage your finances well.
#4 Pay off debt
Set aside money to pay off credit card debt and other high interest debt. You can pay using the debt avalanche method, i.e., paying loans based on interest rate from highest to lowest. Or you could pay using the debt snowball method, i.e., paying the smallest debt first while paying the minimum on all the other debts per month.
Another method you could opt for is debt consolidation. This simplifies debt payment as all your debts are consolidated into one fixed monthly payment. What's more, it makes budgeting and on-time payment easier and more manageable than paying multiple credit card bills. To find out how debt consolidation could work for you, call Financial Rescue’s customer rep. We’ll be more than happy to assist you in helping you get out of debt.
#5 Don’t close unused credit cards
Once you’ve paid off your credit card debt, don’t close those accounts just yet. You need to keep them open for you to establish a long credit history. Remember, length of credit history makes up 15% of your credit score.
#6 Avoid applying for new credit
When you take out a new loan, it triggers a hard credit check which in turn could make your credit score drop by as much as 5 points. So don’t take out credit unless necessary.
As you repair your credit score, remember to stay focused and disciplined. By following the 6 steps mentioned not only will you be able to build you credit score but you also get to develop good financial habits.