Ways to Improve Credit Score
Your creditworthiness is judged through your credit score which is based upon your credit history. If your credit score is damaged, you might have to work extra hard to ensure that it gets back in order. Keeping that in mind we can go through the essentials of credit score recovery.
Pay bills on time
The most efficient way to improve credit score is by paying bills on time. Lenders are interested in knowing about your paying habits. Dependable past payment performance allows lenders to trust your abilities and future performance.
Credit scores are bound to decline in case of late and fewer payments. Make sure you pay the rent and utilities on time as paying towards loans is not enough for improvement. If you have a history of overdue payments, then timely payments become even more important.
Use credit card smartly
Credit utilization ratio also affects credit score calculations to a certain extent. The numbers are derived by adding credit card balances in a period and calculating the total with your card limit. The credit card statements for the last twelve months are taken into consideration.
Generally, lenders like to work with people with thirty percent or less credit utilization ratio. People with lower rate are seen as better credit managers. You can improve the ratio by paying the debt in time and by becoming an authorized user of someone else’s account.
Furthermore, we advise you to not open new accounts for better credit mix. Additional credit will damage your score in numerous ways. Not only it creates further hard inquiries on the credit report but also encourages you to spend more.
Again, it is not wise to close unused credit cards if the lenders are not charging annual fees. Majority of us do not know that a closed account can potentially increase the credit utilization ratio. Meanwhile, owing the same amount of debt but having lesser accounts will decrease credit scores.
Keep a check on your credit reports
There are three bureaus (Equifax, TransUnion, and Experian) that release a yearly credit report individually. These bureaus have often been criticized for making errors in descriptions. Typically, all three reports will have different scores that can discourage a lender.
You must check the reports for mistakes and request for corrections as soon as possible. There is no benefit of making the right moves for improving credit scores when credit bureaus provide faulty reports.
Pay off collection accounts
It is better to pay off debt than to transfer it between new accounts. You can contact the debt collector and request them not to report the debt to credit bureaus for full payment. Although, it is a desperate measure it never hurts to try.
Thus, improving credit score requires consistent efforts over a long period. There is no magic trick to rectify financial mistakes, but you can take steps to boost your credit score gradually. However, all the reasons for not repaying bills on time and using credit cards in the past are bound to repeat. It is only your will to keep finances under control that will help you in the long run.