You need good credit to obtain just about everything in life – a car, a home, and sometimes even employment! It doesn’t take much to cause a score to drop, but fortunately, there are many ways to improve a credit score as well. Understanding the basics of what a credit score is comprised of can help, but the main thing you need to improve your score is a bit of time and patience. Those things are sometimes hard to come by when you’re feeling under pressure, but they pay off dividends in the long run.
The Three Best Ways To Improve Your Credit Score
- Pay all your bills on time, every month.
- Keep a low debt-to-credit ratio.
- Have a variety of loans, but don’t acquire them too quickly.
It’s not rocket science, but in the hustle and bustle of daily life, it becomes easy to let a payment slip by unnoticed by you. Your lender definitely notices, though! To avoid this, you can set up scheduled payments through your bank, usually for free, and that way you don’t have to worry about anything other than making sure you don’t overspend so that you have the funds available when they are drafted.
Debt-to-credit ratio is a “major impact” factor, but most people are wholly unaware of it. To break it down easily, it is how much credit you have spent compared to how much you actually have. For instance, if you have a credit card with a $15,000 limit, and you’ve charged all $15,000, you have 100% debt-to-credit ratio, and that isn’t good for your credit score. That also means you’re paying a ton of interest each month if you’re paying only minimum payments. The magic formula is to keep your ratio at less than 30% – so if you have a credit card with a $15,000 credit limit, don’t carry a balance of more than about $4,000, and less than that is even better. Its optimal to pay off your credit card every month. If you do pay off a credit card, don’t close it. Leave it open, because that available credit still shows on your credit report, and counts greatly in your favor.
Lenders also like to see that you can handle a variety of loans (auto, mortgage, credit card, student loan) but don’t acquire them all at the same time. That will be difficult for you on a personal level, but it will also lead to a bunch of inquiries into your credit, which can drop your score.
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