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What is a Credit Score, and 6 Ways to Improve It

Borrowing ,   Information

by CashOctopus • November 21, 2019

Your credit score is among the top measures of your financial stability. It tells potential lenders at a glance how you can manage financial resources and how responsibly you can use credit. A better credit score means you have a higher chance of getting approved for lines of credit or loans. Besides, a higher credit score can help you get lower interest rates compared to other borrowers with messed up credit reports.

To improve your credit score, there are a few things you can do. These include;

1. Keep tabs on your credit use rate

Analyze your balances relative to your credit limit to determine you are using too much credit. A higher credit utilization rate means that you’re going to get just a few points in that category, and this might put your credit score at risk.

Generally, credit utilization is among the most influential categories in one’s overall credit score. However, your ideal rate will vary depending on the scoring system implemented. No matter the specific scoring system used, minimize your credit utilization rate. Also, if you are struggling with high balances and piling interest payments on your credit cards, it’s best to consolidate with a 0% introductory rate balance transfer credit card.

2. Review your credit report

An essential step towards improving your credit score is to know what’s working against you and in your favor. This is where checking and analyzing your credit report comes in. Get a copy credit report from the relevant credit bureaus and analyze it to know what’s potentially hurting your credit score.

Some of the factors that contribute to a better credit score include having low balances on your credit cards, older credit accounts, history of on-time payments, minimal inquiries for new credit, and a mix of various credit card and loan accounts. On the other hand, collections, missed or late payments, judgements, and high credit card balances could harm your credit score.

Therefore, it’s best to analyze your credit report for errors that could affect your score and get all possible errors fixed. It’s also recommended to adjust your credit habits to ensure no negative report that could impact your overall credit score.

3. Pay all your bills on time

Generally, one-time payments are a significant part of your credit score. Delayed or missed bill payments could mean a serious dent in your credit rating. If you have been ignoring bills or paying them late in the past, you cannot wipe out that mistake. But you can weigh its impact by ensuring all your bills are paid on time each month.

Note that your recent bills payments count heavily on your credit score, and that means your old mistakes are likely to fade in the background with time. In case it’s challenging to keep tabs on your bills, set payment reminders. Most banks and other institutions provide this option, making it easier for the consumer to know when some bills will be due.

It’s also possible to establish an automatic bills payment plan that gets your bills cleared as soon as they come in. The downside of this method is that you might not get a chance to review the bills and find out if there are errors before you pay.

4. Don’t close your old accounts

Most people still think having old debts on their credit history is a negative thing, and as soon as they pay off the credit card, they choose to close the account. For instance, once they’re done paying off a vehicle loan, they contact the credit bureaus to get the debt off their record. This is backward as any debt, no matter how old, you have paid off on time is good for your overall credit score. The longer these positive records stay in your record, the more they strengthen your score.

According to financial experts, keeping the old credit card open is a good idea even if you don’t use them. For one thing, they add to the overall amount of credit you can access, and since you aren’t using it, it helps keep your credit utilization rate low. A higher credit limit on the card strengthens your score.

5. Credit counseling

By paying down your debt, avoid new debts, keep your old accounts, and correct errors in your credit report, you can avoid giving the impression that you are struggling financially when you are not. What if you have trouble making ends meet? Is it possible to dig yourself out of the financial chaos without affecting your credit badly?

If you’re in such a situation, your best bet is to seek credit counselling service. Financial experts who provide these services can help you set up an effective plan to get your debts paid off in manageable instalments. In some cases, the counsellor can negotiate with creditors to reduce the interest rates and probably the penalties you are required to pay.

Note that seeking the services of a credit counsellor may not fix your damaged credit score immediately. But as you continue to make timely payments and your credit score will continue to improve. Thus, a credit counsellor can help you keep an excellent credit score in the long run.

6. Watch out for scams

Perhaps you have seen ads for services that offer to ‘fix’ a bad credit score. Some individuals even claim they can help ‘erase’ bad credit and remove bad debts from your record. This sounds too good to be true. Sure, there are legitimate credit repair services, but anyone promising that your bad credit history will disappear magically is deceiving you.

Final word

Most people think that being judged by their credit report is unfair. This is because credit score shows a single thing about you – how responsible you are when it comes to repaying debts. The reality is, nearly all lenders will ask about your credit score if you ever want to apply for a loan. Therefore, you should focus on keeping your credit score higher.