Before a lender grants you access to a loan or other credit facilities, he wants to be sure that you’ll repay him. As a result, the lender will analyze your credit score, so he can be rest assured that you will not only repay the loan but also pay on time.
Your credit score will determine if you’re eligible or not as a borrower. In this article, we will look at the nature of credit scores and how you can use them to your benefit.
What Is a Credit Score?
A credit score is a three-digit number that lenders rely on to determine your eligibility in repaying credit facilities. If your score is high, you stand a greater chance to be considered for loans with favorable terms and conditions. When this happens, it will save you a lot of money. Research has proven that people who are over 60 years old tend to have a higher credit score.
If, however, your credit score is not where you want it to be, there’s no need to fret. Improving your credit score may be time-consuming, but not impossible. if you don’t clear the obstacles on your way, you may get to your desired point.
How Is Credit Score Calculated?
The payment history, type of credit accounts, the number of accounts, the used and available credit, and the length of credit history are important factors used to calculate an individual’s credit score.
An individual can have different credit scores. To know the true state of your credit, mathematical algorithms are applied to the information in one of the credit reports you have made available. There is no one common algorithm used by all lenders to determine credit scores. Even though different calculation models exist, the factors that affect them positively or negatively are still the same. The only material difference is the extent to which your score was affected by such factors.
What Is a Good Credit Score?
A good credit score puts you in a favorable position with lenders and credit reporting agencies. For major credit reporting bureaus, the range is from 350-800. This range will grant you access to a wide range of credit facilities.
What Ways Can You Boost Your Credit Score?
If you are not satisfied with your credit standing, all is not lost. There are ways in which you can reverse the situation and better your credit scores. Let’s look at some of them.
Pay Bills Off and On-Time
Every lender seeks to lend credit to a reliable borrower. That is why they always check for your payment reliability when assessing your credit report. Your past payment performance gives them an idea of how well you will do with the present loan.
One way to leverage on your past performance is to pay all your bills on time, and as agreed upon. Late payment and paying less than was originally agreed upon, negatively affect your scores. This does not only apply to major bills, but also utility bills like rent, and phone bills. You can make use of automated reminders and payments to get yourself off the unreliability radar.
If by any chance you’re still not current on your payments, try to do so. Ordinarily, failure to pay on time stays on your record for seven years, although their influence on your credit rating wanes over time.
If you want to commit to paying your utility bills on time, then you must make your payments frequently. When you’ve done that, you stand a greater chance to secure the needed credit. You can make use of credit boost apps to achieve this. This will help you assess your bank account, identify utility payments, add them to a designated file and give you your credit score in real-time.
Ask For Higher Credit Limits
Asking for higher credit limits is one of the ways you can improve your credit utilization ratio. Provided that your balance does not increase, raising the limits helps with your credit utilization. You can request a credit limit increase online, you only just need to increase your annual household income. You can also request your credit increase via phone call.
Check for Credit Report Error
You need to carefully review all reports from the three credit reporting agencies and ask for clarification on any inconsistent information. Check for credit report errors by contacting your lender or the credit reporting agency of your choosing.
You should also get a report every week from the major credit reporting agencies. Request those reports and review them. Check for late entries of payments when in fact you paid early. You should also check for harmful information that is too old to be included within the report.
Keep Credit Card Open
It’s crucially important to keep your credit cards and credit accounts open. If your credit card and account are older, the more eligible you will be in the lender’s estimation. We recommend that you do not close down your credit accounts because they will operate to your advantage eventually.
Your available credit suffers and your credit utilization ratio will increase when you close your old credit card. This will consequently knock points off your credit score. Take an action regarding unresolved issues relating to your delinquent accounts. In situations where you have multiple late payments, try as much as you can to get caught up.
Create an Account Mix
To increase your credit standing, you’d have to diversify your credit portfolio. It doesn’t pay to have just credit cards and loan structures, you need more. Adding revolving credit and installment accounts to the mix can improve your credit standing for prospective lenders.
Become an Authorized User
You can take advantage of a relative’s good credit standing to increase your own. Ask to be added as an authorized user to their accounts.
Here’s the catch: the account owner must not let you use the card. He must not give you access to information on the account. If you have a credit file that is thin in size, this is the perfect fit for you. Its effects are major, as it can fatten up your file, lower your credit utilization ratio and increase credit history.
Write a Goodwill Letter
A Goodwill letter is a letter written to your creditor, asking them to remove a negative tag from your credit report/statement. In truth, creditors are not under any duty to respond to your request. However, in situations where they are granted, some benefits will accrue, namely:
- Raise your credit score
- Help you get approved for some loans that you previously would not have qualified for
- Help you get lower interest rates
How Quickly Can You Change Your Credit Score?
The length of time it will take to change your credit score is largely dependent on a variety of reasons. The average period which this can happen is 30 days. However, in each case, the timeline can only be estimated, not determined.
Is It Possible to Increase Your Credit Score Up 100 Points in One Month?
It is quite possible to increase your credit score up to 100 points in a month. However, it all depends on your credit score. If your credit score is low, you are most likely to get a 100 point increase. This is because even the smallest of changes can cause a huge increase in score.
If you’re starting from a position of a higher credit score, you need not worry. You don’t need an increase of 100 points to gain access to credit offers available.
What Hurts Your Credit Score the Most?
Some actions will affect your credit standing adversely. We’ll look at some of them.
Missing Payments: One of the most important indices in your credit score is your payment history. If you have so much as one late or missing payment, it will affect your credit score negatively.
Negative Account Information: If your account has foreclosure, bankruptcy, and repossession tags on it, you will suffer for it over time. For a period of up to ten years, lenders will always clutch their purses rather than offer you credit facilities.
High Credit Utilization: Lenders will not look favorably upon you if you make use of every credit offer that comes your way. It would show them that you’re highly dependent on credit. That means that sources for the repayment of the debt are few, if not non-existent.
Getting Help Increasing Your Credit Score
Improving your credit score is ultimately necessary if you’re looking to take out credit and make major purchases. Consulting a financial advisor will help you understand your current financial situation and also set goals to help you attain a higher credit score. They will review your credit report, teach you ways to improve your financial situation, and assist you to draw up a budget plan.
A financial advisor will also show you investment planning strategies that will align with your long-term goals, and hold regular meetings with you to ensure that you stay on track financially.