A survey by LendingTree demonstrates that lower interest rates and premiums for someone with a very good credit score of 740-799 could end up saving $49,462 annually in comparison to someone with a fair credit score of 580-669.
A good credit score is influential in securing loans, mortgages, and credit cards with favorable terms and will save families money. Favorable credit scores can also help someone get lower interest rates and insurance premiums, making it easier to manage their finances.
Certain life-changing purchases may only be possible with a good to great credit score. Taking every step possible to improve a credit score can be one of the best decisions of your life.
Here are seven easy ways to improve your credit score.
Keep an Eye on Credit Reports
You want to check your credit reports regularly. Everyone can get a free copy of a credit report from each of the three major credit bureaus once a year. It’s simple and quick to set up a profile on Experian or a similar online service; log in once a month and check the score.
Check the report carefully for errors and inaccuracies. If you find any errors, report them to the credit bureau immediately. Errors can hurt a credit score, so correcting them as soon as possible is important before those mistakes ruin your credit further.
Pay Bills on Time
One of the most important factors that affect a credit score is payment history. Late payments can hurt a credit score, so paying bills on time is important. To make this easier, set up automatic payments for bills like rent, utilities, and credit cards to ensure payments are always noticed. If a payment is missed, make it up as soon as possible. The longer the delay, the more it can hurt your credit score.
Keep Credit Utilization Low
Credit utilization is the amount of credit used compared to the amount available. The lower the utilization score, the higher the credit score.
For example, with a credit card that has a $7,000 limit and $3,500 of charges, the credit utilization is 50%. High credit utilization can hurt a credit score because there is less credit available, so it's important to keep it low. Experian recommends keeping credit utilization below 30%.
For example, if the total credit limit is $10,000, the total credit card balance shouldn't exceed $3,000. “Generally, a low credit utilization ratio indicates that someone is doing a good job of managing credit responsibilities because the individual is far from overspending, according to Experian.
Also, if someone has multiple credit cards, spread out the charges across all of them instead of using one card heavily.
Don't Close Old Credit Accounts
The length of a person’s credit history is another factor that affects a credit score. The longer an individual has had credit, the better it is for their score. So closing an older account will have more of an impact on a score than closing a newer one.
Keep old credit accounts open, even if someone is not using them anymore. Maintaining these open accounts increases the average age of credit accounts and improves a credit score. It also helps lower credit utilization because older accounts contain unused credit. Closing an older account will have more of an impact on a score than closing a newer one.
Apply for Credit Sparingly
Every time someone applies for credit, it appears on a credit report as a hard inquiry. Too many hard inquiries can hurt a credit score, so applying for credit sparingly is important. Each application can shave off some points, even if approved.
The effect of applying for credit will be different from person to person. Someone with lower credit will likely be affected more than someone with better credit. Only apply for credit when needed, and try to limit applications to one or two a year.
Consider a Secured Credit Card
A secured credit card is a credit card that requires a cash deposit as collateral. The deposit amount usually becomes the credit limit, and the secured card acts like a regular credit card.
Getting a secured credit card can be a good option if you’re trying to build or rebuild credit. All major credit card companies offer secured credit cards, like Visa, Mastercard, and Discover.
The key is to use a secured credit card responsibly by making on-time payments and keeping credit utilization low.
Don’t Be Afraid To Ask For Help
Improving a credit score can be complicated. It's perfectly fine to seek assistance in this process. Numerous financial advisors offer finance courses that guide you in the steps to enhance your credit score, pay off debt, and grow your savings. By reaching out for additional support and following their step-by-step guidance, you can reap significant benefits in the long run. Over time, responsible credit use will help improve a credit score.
The significance of maintaining a solid credit score cannot be overstated. By demonstrating responsible financial behavior, individuals secure their present financial stability and pave the way for brighter prospects in the future.
A good credit score helps you get better loans, credit cards, and insurance terms. Accessing mortgages, car loans, credit cards, and many employment opportunities hinges on this crucial number. Improving a credit score takes time and effort but is worth it in the long run. Anyone can improve their credit score today by following these seven easy tips.
Mark is the founder of Financial Pilgrimage, a blog dedicated to helping young families pay down debt and live financially free. Mark has a Bachelor’s degree in financial management and a Master’s degree in economics and finance. He is a husband of one and father of two and calls St. Louis, MO, home. He also loves playing in old man baseball leagues, working out, and being anywhere near the water. Mark has been featured in Yahoo! Finance, NerdWallet, and the Plutus Awards Showcase.