A good credit score gives you access to financing and positively impacts your ability to borrow money. It is also essential when seeking approval for a mortgage or rental and can affect your job opportunities. Unfortunately, some people struggle with maintaining a good credit score due to poor spending habits or lack of financial education or information. If you have a poor credit score, all hope is not lost. Here are five tips to improve your credit score and get closer to financial freedom.
1. Pay Bills on Time
One of the most important determiners of your credit score is your payment history. Whatever strategy you use to increase your credit score will not work if you still delay your payments, as they can stay on your credit score for more than five years. Pay your bills on time or as soon as possible, and ask the creditors not to report the payments you missed to credit bureaus. To ensure you pay bills on time, consider automating the process from your bank, setting up reminders, and maintaining a record of your monthly bills.
2. Review Your Credit Score Regularly
Reviewing your credit score regularly helps you identify any errors in your report that could negatively affect your credit score. Ensure all the information is accurate and report any mistakes to credit reporting agencies for correction. Some of the issues to look out for in the report include payments flagged as late despite being paid on time, outdated negative information no longer relevant, and a mix-up of credit activity.
3. Reduce Your Credit Utilization
Credit utilization is the amount of credit you use compared to your overall available credit. Keep credit utilization as low as possible; ideally, it should be at 30% or less. Individuals with high credit scores usually utilize about 7% of their available credit. Using less available credit shows that you are a responsible credit user and can boost your credit score. Pay up your credit balances in full every month to keep your credit utilization in check.
4. Apply for a Higher Credit Limit
You can increase your credit score by applying for a higher credit limit. A higher credit limit while maintaining your balance reduces your credit utilization and improves your credit score. The best time to apply for a higher credit limit is after an increase in income or if you have consistently shown a positive credit experience. Doing so gives you a better chance of your application being successful.
5. Keep Old Accounts
15% of your credit rating relies on the age of your credit history. As such, don’t be in a hurry to close your old accounts unless you incur annual charges for the open accounts. Otherwise, keeping old accounts as long as possible is advisable because closing them reduces your account’s average.
The older your credit account is, the better your credit score will be. However, the issuer of your credit may close your old account if you haven’t used it in a while. To avoid this, you can keep old accounts active by putting recurring purchases such as streaming subscriptions on them, then setting up automatic payments to settle the bill on time.
Understand Your Credit Score
Managing your credit score is an important part of personal finance, and a solid understanding of the factors impacting your credit can go a long way towards protecting your financial wellbeing. Whether you are starting from scratch or need to improve your credit after ruining it, the above tips will help you get on the right track.