Your credit score can have a big, looming presence on your finances. Every time you make a decision about your finances, your credit score is changing in the background. If you take out a loan, use your credit card or even pay for a new phone bill, your credit score will be affected.
Of course, what exactly is a credit score? How do you improve a credit score that isn’t very good? Why should you care? Well, here’s everything that you need to know about how you can improve your credit score and why you should bother to do so.
Table of Contents Hide
- Why Should I Improve My Credit Score?
- Ways To Improve Your Credit Score
- Pay Off Any Debts
- Cut Down On Credit Cards
- Check Credit Report
- Contact Your Creditors
- Adjust Your Accounts
- How Long Does It Take To Improve A Credit Score?
Why Should I Improve My Credit Score?
Your credit score is ultimately a reflection of your financial health – that’s why you should want to improve it! If that’s not good enough, then why else should you improve your credit score?
First, it’s important to note what it means to have a good credit score. In the US, you are usually looking at your FICO credit score. In general, a good credit score is one that’s over 690. If your credit score is any lower than this then it may be time to try to improve your credit score. Your credit score can be influenced by a lot of different spending habits too – every loan you take, every big purchase you make – there’s an impact on your credit score.
Now all of that has been explained, there are a wide variety of benefits to having a good credit score that you should know about.
Important for your financial health-unlock savings and benefits
As we have already stated, your credit score is a reflection of your financial health. It should be obvious then, but if your financial health is good then you’re going to have a lot more options available for things like savings, loans and other benefits. For instance, are you ready to purchase something big like a car or a home? If your credit score is high then you will find it much easier to secure a loan with a lower interest rate. This may not mean much to you now, but in the long run it can equate to some pretty major savings, especially with purchases like houses that can cost hundreds of thousands of dollars.
Not only that, but you may also be able to get discounts on your insurance. Sure, they can’t turn you down if your credit score isn’t very good, but you are much more likely to get better insurance premiums on things like car insurance if you have a good credit score. You are likely to have more housing options available to you too, and you might even get some security deposit waivers on utilities. These are a lot of benefits that you just don’t want to miss out on!
Can affect your ability to borrow
The main thing to remember when it comes to your credit score is that it ultimately impacts your ability to borrow money. This may be through a loan or something similar. If your credit score is low then you may not have access to particularly good loans. You won’t be able to borrow large amounts of money with a poor credit score – some lenders may not even accept your application to borrow. If you have a good credit score though you have more options for borrowing, which is vital when you are in an emergency situation and you need to borrow.
In addition to this, you will be able to get much better credit cards when you have a good credit score too. You will be able to access cards with incredibly low interest rates, cards that come with good rewards like travel points and cash back offers and so much more. You may even qualify for 0% APR purchase too, which can mean that you save a lot of money in the long run.
Ways To Improve Your Credit Score
As you can see, it’s a really good idea to improve your credit score! You will get to experience a lot more benefits if you improve your credit score, so you should definitely make the effort to make your credit score look a little better. Of course, it can often be difficult to know how to improve your credit score. Thankfully, we have the lowdown on everything you need to know about the ways that you can improve your credit score.
Pay your bills on time
The biggest thing that can impact your credit score is whether you pay your bills on time, or at all in some cases. Your credit score is ultimately a reflection of your credit history. If a lender notices that you consistently pay your bills late from looking at your credit score, they aren’t going to be likely to give you a loan. Not only that, but a late payment can leave a stain on your credit report for 7 and a half years. The impact will fade after a while, but it’s still a nasty mark to have on your account.
For this reason, you need to start making a conscious effort to ensure that your bills are paid on time. Here’s what you need to know.
Don’t miss loan/credit card payments by more than 29 days
It’s only natural that you may need to pay things late every once in a while. Things can come up – life happens. Most lenders will understand this. There comes a point, however, where even the most lenient of lenders won’t accept a late payment. If you pay your credit score 30 days or later after the payment’s initial due date, you could see your credit score dropping by a massive 100 points in some circumstances. This could be the difference between a fair credit score and a poor credit score, so you need to be very careful about making your payments on time.
Payments that are late by 30 days can be reported to the credit bureaus
If your payment is more than 30 days late, the lender can report the late payment to the credit bureau. If you pay it before this point then you shouldn’t experience many issues, other than potentially paying a late fee in some situations.
You can usually check your credit report to see if there are any late payments that have been logged on your account. Many of the main credit reporting bureaus such as Transunion, Equifax and Experian will give you a free credit report every week so it’s definitely worthwhile to take a look at yours on a regular basis so you can report any discrepancies – more on that later.
If you are more than 30 days late with your payment, try not to panic. You should try to make your account current as soon as you can. You will get a bad effect on your credit score after 30 days, but if another 30 days pass without paying the bill then you will see some pretty catastrophic effects on your credit score. You can then write a goodwill letter to the creditor in order to get the bad mark off your record.
Try and pay your bills every two weeks rather than once a month: Improves credit score
You may think that it is better to pay your bills on a monthly basis in order to improve your credit score. Surprisingly, this is not actually the case. Instead, you should try to pay the bills on a more regular basis, especially if you are trying to pay off a credit card. This means that the money is more manageable. It also means that you won’t accrue interest in such large amounts. You will even reduce your credit utilization ratio – this should be kept to below 30% if possible. If you have a lower balance before the closing date then this will then be reported to the credit bureaus, and this will impact your credit score.
Remember: Set up reminders for each bill
In some situations, you may have simply missed the bill because you forgot to pay it. This is easily done, especially if you manage your money by dividing it into smaller savings accounts. The problem is that if you forget to pay the bill, you may end up with a late payment charge or an impact on your credit score.
You can easily avoid this issue. Simply set up some reminders that the bill is coming. In some cases the lender will remind you when your bill is due. In other cases, you can simply set up your own alerts to notify you when you need to transfer money over to your main account ready for it to be paid.
Pay Off Any Debts
If you want to improve your credit score, one thing that you should be doing is paying off any debts that you have. If you have a lot of debts next to your name that aren’t being paid off on a regular basis, then it goes without saying that lenders are going to be wary of you. Work on paying off your debts to make your credit score look a million times better than it currently does.
Ensure you are paying credit card debt
You may think that paying off your credit card debt would hurt your credit score. After all, credit cards and borrowing with them usually helps your credit score. As it turns out though, paying off your credit card debt can be very good for your credit score.
Why is this? Well, if you have a high balance outstanding on your revolving credit accounts then it usually means that you will have a high credit utilization rate – this can hurt your credit score. You need to look at the percentage of the total debt you owe in comparison to your total credit limit – it has a huge effect on your credit score. If you want to have a high credit score, then your credit utilization rate should ideally be sitting in the single digits.
Of course, it’s easy to say ‘hey, pay off your credit card debt and your credit score will improve.’ It’s another story entirely to actually do it. So how can you pay off your credit debt?
The first thing that you can try to do is complete a balance transfer. It’s worth transferring the balance onto a card that doesn’t offer any interest for up to 21 months. This way, you can pay it off much faster. Not only that, but this will also be cheaper for you since the card has no interest, so you aren’t paying extra on top of your pre-existing debt. In most cases you will need to complete the balance transfers within around 4 months of opening the account.
If that’s not an option, you can also cover the costs of the loan by taking out a personal loan. This is a good choice if you are unable to get a balance transfer card. In fact, there are usually more flexible credit requirements with personal loans, and they’re especially useful if you are in a big amount of debt. Not only that but a loan can also help you to reduce your credit utilization rate. The same cannot be said for a credit card.
Make sure that you are using any rewards that you have too. Do you have cash back, miles or points? If so then you can sometimes take them out in exchange for statement credits, and these can often help with the cost of your bill.
If you can pay off your debts in a more timely manner, you are sure to see a positive impact on your credit score. If possible, it’s also a good idea to try and keep your credit utilization rate below 10%.
Cut Down On Credit Cards
It may seem counterintuitive to avoid opening too many credit accounts, but the truth is that having too many accounts open can be problematic for your credit score.
When you are first trying to build up a credit score, borrowing money whether it’s for finance or credit cards can be beneficial. Of course, you shouldn’t be applying for credit too often. Every time you make a credit application a hard inquiry will be carried out, and this can sometimes hurt your credit scores. These inquiries can eventually add up if you’re doing a lot of them.
Avoid opening up too many credit cards at once
There are a number of reasons why it’s a bad idea to open too many credit cards at one time. There’s the reason we mentioned above about the hard inquiries, but there’s more. For starters, there’s the obvious problem that having too many accounts open at once can often mean that it’s harder to rein in your spending. It will become much more tempting to spend lots of money. As such, your credit utilization score will increase and you are more likely to make late payments. As we have already mentioned, both of these things can have a big affect on your credit score.
That’s not all, either. If you find that you have too many accounts open and you want to close one, you can sometimes hurt your credit score by closing an older credit account. This is because your average age of credit can be reduced which can have a negative impact on your score.
Applying for too many credit cards at the same time can make you look like a greater risk
In addition to this, if you have a lot of credit cards open at once it can look like you are a higher risk to lenders. The assumption may be made that you are incapable of properly managing your money with your existing credit accounts, so they may be hesitant to lend to you. This is especially true if you have a lot of outstanding debts on your cards and you are known for making late payments. Instead, try to stick to using just one or two credit cards and following the advice mentioned above to manage your credit cards.
Check Credit Report
There’s a good chance that you’re probably getting an email on a regular basis. That may be from Experian for instance. These emails will generally tell you that a credit report has been generated. This may seem a little annoying, but it’s definitely worth your time to check it as often as possible. Ideally, you should try to check your credit report once a month at minimum – you have nothing to use, and most credit bureaus will usually provide the reports free of charge.
Credit reports, much like anything else in life, are not foolproof. They are generally rather accurate, but there is always the chance that there may be an error on your credit report. According to a 2012 study conducted by the Federal Trade Commision, a staggering 25% of Americans have mistakes on their credit reports. These errors can have catastrophic consequences on your credit score that could easily be avoided if you simply rectify any mistakes that may appear.
So, what should you do? Have a look at your information with the main credit reference bureaus. If you do notice any errors, make an effort to get them solved as soon as you can so they won’t continue to reduce your credit score. This is usually as simple as getting in touch with the company that gave the bureau the information in question. Alternatively, you can also speak directly with the credit reference agency and they will conduct an investigation for you.
In fact, this is actually one of the fastest ways that you can alter your credit score. Any lender or credit bureau must respond to a dispute within 28 days, but in most cases the issue is solved in fewer than two weeks. In the case of big errors, that can make a dramatic difference to your credit score.
Annual credit card report will help you spot errors
You will also be sent an annual credit report from all three of the credit reporting agencies every single year – they are required to send them to you by law. You should be checking them every year when they are sent in order to ensure that all of your information is current and accurate.
Contact Your Creditors
Communication is key when it comes to finance related issues, and that is certainly true if you want to improve your credit score. Contacting your creditors is one way that you can improve your credit score.
Contact immediately to set up payment plan if you miss payment deadlines and can’t afford monthly payments
If you miss any payments, it’s imperative that you get in touch with your creditors. If you make a payment that is very late, then the creditors are generally obligated to report that to the credit bureau. As such, your credit score can be affected.
Of course, creditors also tend to understand that sometimes life happens. It can sometimes be difficult to pay off debts exactly on time. If you miss any payment deadlines and you are struggling to afford the bills that you are getting on a monthly basis, then speaking to your creditors will most likely help you out a considerable amount. If you address the issue quickly then it’s less likely that it will affect your credit score.
In some cases, a creditor may be able to help you out. For instance, if you have recently lost your job then it’s possible that you may be able to take a mortgage holiday for a month or so until you can get back on your feet. This means that your credit score isn’t likely to be affected as much as you won’t be late for the payment.
Likewise, if you notice that something incorrect has been reported to the credit bureau, you can speak to the creditor to dispute the issue. Don’t just sit there and do nothing – be proactive over your finances and it will reflect well in your credit score.
Adjust Your Accounts
You can make a big impact on your credit score by adjusting your accounts a little. For instance, are you constantly using the same kind of credit? In this case, it may be time to diversify a little.
Your credit mix e.g mortgage/ loans counts for 10% credit score
One thing that can have a big impact on your credit score is your credit mix. Your credit mix refers to the kinds of investments that you are making. For instance, you may have a mortgage but you may also have a credit card.
Most FICO scores will consider your credit mix as part of your overall score. It can actually account for 10% of your total credit score.How you manage your credit mix can have a big effect on your credit score, so it is in your best interest to pay attention to it.
There are a few different kinds of credit available. First is installment credit – this is a kind of credit that will have a fixed end date and you will have to make payments every month in most cases. This can be something like a mortgage, a student loan or a car loan.
Revolving credit, on the other hand, does not come with an end date in mind. You are simply expected to pay a minimum fee every month. It’s possible to pay more than the minimum amount but you don’t actually have to. Usually credit cards are the main kind of revolving credit that you will see. There’s also another kind of revolving credit that you can use known as a Home Equity Line of Credit, also known as HELOC.
Some loans that don’t count include payday and title loans.
Another element to your mix may help your score
You aren’t going to notice any massive impacts on your credit score if you only have one kind of credit. With that being said though, you are likely to have a much better credit score if you have a good credit mix. For this reason, it’s a good idea to ensure that you have a few types of credit under your name. If you have a mortgage or an auto loan, why not take out a credit card to improve your credit mix? It’s a very simple thing that you can do that can make a big difference to your credit score.
How Long Does It Take To Improve A Credit Score?
Now you know about our 6 tips to help you to improve your credit score. Of course, there’s one big question that remains – how long will it take to improve your credit score? The big issue is that it’s not really possible to fix a bad credit score overnight in most cases. If your credit score is really bad and you had some serious issues in your credit history, it will likely take longer for you to improve your credit score than if your issues weren’t bad. It may take a couple of months to repair your credit score, or in some cases it could take years.
So, what’s the damage? Well, if you have negative payment information under your credit score, for instance Chapter 13 Bankruptcy, late payments and collections, these are all things that can stick around on your credit score for a massive 7 years. If you have a Chapter 7 bankruptcy then this can stay on your score for a period of up to 10 years.
As time passes, issues on your credit score are less likely to be prominent. If you have some serious issues under your name though it can be a lot harder to shake them.
Smaller issues such as maxing a credit card account may take around 3 months for your credit score to recover, for instance.
Other things can influence how long it takes for your score to recover too. For instance, lags in timing can cause problems. If you paid your credit card on time then this would reflect positively on your credit score, but it may take a while for it to register since it can take time for the creditor to report this to the bureau.
In reality, it can take from a few months to a number of years to improve a credit score. In most cases though you will find positive influences on your credit score show up much faster if you follow the advice listed above. If you make an effort to improve your credit score then you are more likely to see that it is improving with time.
Your credit score is a reflection of you, so it’s vital that you make every effort to improve it. It’s especially important when you are trying to make a big financial decision like getting a mortgage. It can seem very daunting to improve a credit score at first, especially if your current score is very poor. However, with some time and patience, you can make improvements with time.
Make sure that you are doing the things listed above to see some positive changes to your credit score. Pay your bills on time and speak to your creditors if any issues come up. Check your credit score on a regular basis to ensure that there aren’t any errors that are causing you problems. If you do all of these things, your credit score is sure to improve. Good luck!