Increasing your credit score has numerous benefits, such as B. Lower interest rates on credit cards and loans. You can save money on insurance and deposits for new utilities and mobile services with good creditworthiness. In addition, understanding how your credit score system works and adhering to these rules can help you maintain a good score.
1. Find out what contributes to a good credit score
Calculate your credit score using five critical pieces of information: payment history, credit usage, credit age, credit mix, and new credit.
Unfortunately, credit rating systems do not always represent the exact credit risk of an individual, especially when many are black and low-income. In addition, current scoring models are criticized for perpetuating biases inherent in the financial system, such as including mortgage payments but not rents.
Services like Experian Boost, on the other hand, allow consumers to enter utility bills into their credit reports. Additional services may include paying rent in your credit report. However, lenders can use credit scores that do not work with these services, so pay attention to how traditional scoring systems behave in order to maintain a good credit score.
2. Pay your bills on time
Timely payment is essential for all bills, not just credit cards and loans. For example, even if you do not use a third-party service that can report payment of rent and utilities to credit bureaus on time, late payments may still appear in your credit report. So, if you want to maintain a good credit standing, pay all your bills on time.
3. Keep your credit card balance low
The more credit cards you have relative to your credit limit, the lower your credit score. To maintain good creditworthiness, the total balance of your credit card should be less than 30% of your total credit limit. The lower the balance, the better.
Even if you plan to repay your balance when it matures, carrying a balance that is more than 30% of your credit limit is dangerous. The balance on the statement date is generally reported by the card issuer, which is the number that appears on the credit report. So it’s a good idea to keep your account online and pay enough to keep your balance as close to $0 as possible at the end of your billing month.
4. Don’t close your old credit card
When you close your credit card, the credit card issuer stops sending updates to the three major credit bureaus: Experian, Equifax, and TransUnion. Canceling an older account may have a negative impact on your score because the credit score formula highlights inactive accounts and the age of the accounts. Furthermore, Schufa will permanently delete the closed account history from the Schufa report after approximately ten years. If you lose that credit history, your average loan age will be shorter, and your credit score will drop.
Closing your credit card will also reduce your available balances. For example, if you have three cards with a total credit limit of $10,000 and approach one with a limit of $3,000, your total credit limit will be reduced to $7,000. A rule of thumb is to keep your credit card utilization below 30% of your available credit power. So, the threshold will be reduced by 900 USD if you close this card.
5. Limit new credit requirements
Too many recent credit inquiries can have a negative impact on your credit score. Credit card issuers don’t like this at all. Applying for more credit cards may seem dangerous to lenders, but applying for a car or personal loan can encourage lenders to lend. Investigation. For the best credit. Only ask for a loan if you need it. Opening a new credit card account also lowers your average credit age.
6. Strategically pay off your credit card balance
The part of the credit limit that you use constantly is called the loan utilization rate. Good guidelines: use less than 30% of the limit on each card. The lower, the better. The player with the highest score uses less than 7%. (You can track your credit usage per card and overall by looking at your credit rating profile at NerdWallet.)
When a card issuer applies to a credit bureau, ensure that the balance is low. This is because it is used to calculate results. One easy way to do this is to keep your balance low by paying off your balance before the end of your billing cycle or several times a month.
- Impact: Very influential. Your credit burnout is the second most important factor in determining your credit score. The most critical factor is timely payment.
- Commitment to time: low to medium. Set up calendar reminders for registration and payment. You can also add alerts to your credit card account to notify you when your balance reaches that amount.
- Operating speed: High speed. As soon as a credit card reports a low Schufi balance, the results are calculated using standard usage.
7. Become an authorized user
If your relative or friend has a credit card account with high credit limits and a long list of overdue payments, ask them to add you as an authorized user. This credit limit can help you use it because it adds an account to your credit report. With the status of “Approved User,” also known as “loan repayment,” you benefit from a positive payment history of your primary user. To improve their creditworthiness, the account holder does not have to authorize the use of the card or provide an account number. For best results, ensure your account is registered with all three major credit bureaus (Equifax, Experian, TransUnion). Most credit cards work.
- Impact: potentially more significant, especially for new borrowers with weak credit histories. For those with established credit who are trying to compensate or reduce the use of credit, the impact is low.
- Commitment to time: low to medium. You need to talk to the account holder requesting this benefit and agree on whether you can access the card and account or be listed as an authorized user.
- Operating speed: High speed. Once you have been added and this credit account is signed in to the office, the account can benefit from your profile.
8. Pay your bill on time
Credit score strategies won’t work if you’re late with your payment. To make matters worse, late payments can stay on your credit report for seven and a half years.
Contact your lender immediately if you miss a payment for more than 30 days. Make payments as soon as possible and ask if the lender considers Schufi not reporting outstanding payments. Even if the lender does not, it is worthwhile to update the account as soon as possible. If your account is marked due, your score will decrease each month.
- Impact: Very influential. Your timely payment records are crucial in FICO and Vantage Score credit scoring systems.
- Time required: little. Prevent default payments by setting account reminders and allowing automatic payments that cover at least the minimum amount.
- How fast it works: depends on the number of missed and recent payments. Delay in payment is also significant (late 30, 60, 90 days or more). Fortunately, overdue fees decrease over time and can be accelerated by adding more positive credit accounts.
9. Disagree with the errors in the credit report
If any of your credit reports are incorrect, your score may fall. Conversely, challenging a credit report error can help you quickly improve your credit score.
You are entitled to free reports from each of the three major credit bureaus. For example, inquiries made through AnnualCreditReport.com, payments marked as late when paid on time, other people’s credit activity is wrong for your credit activity, too old to be listed as negative. Check for errors such as information
- Impact: varies but may be higher if the creditor fails to pay but reports that he has not made the payment.
- Time investment: medium to high. It takes time to request and read a free credit report, file an error complaint, and track your follow-up. However, this process pays off, especially if you are trying to build a loan before a significant milestone, e.g., B., when applying for a large loan. If you consider applying for a mortgage, be prepared to end the hassle.
- Operating speed: different. Credit bureaus have 30 days to investigate and respond. Some companies have disputed the mistake, offering to strengthen their credibility immediately, but beware.
10. Manage debt collection accounts
If you repay your billing bill, you are less likely to be sued for billing and may be able to persuade your billing agency to stop charging you. You can also remove a billing account from your credit report if it’s inaccurate or too old to appear on the list.
- Impact: different. Billing bills are a serious negative sign for credit reports. So, if the enforcer agrees to stop reporting the account, it can be extremely beneficial.
If the collector continues to report the account, the impact depends on the scoring model used to generate the results. For example, the most widespread FICO8 model for credit decisions always considers paid fees. However, modern FICO models and Vantage Scores neglect payment collection.
- Commitment to time: average. You should request and read your credit report and then plan to work with the listed debt collection accounts.
- Operating speed: Moderately fast. Credit scores that ignore paid collections, such as the Vantage Score and the new FICO, benefit from scores after paid status is reported to Schufi. In other cases, such as a B. dispute over the collection or a request to withdraw goodwill, the process may take several months.
11. Use a secure credit card
Another way to build or renew your credit is to use a secured credit card. A cash deposit secures this type of card. You have paid it in advance, and the deposit amount is usually equal to your credit limit. Use it like a regular credit card, and your timely payments will help build your credit.
Impact: No. This can be useful if you are new to your account or have bad credit and are looking for a way to add a more positive credit history and dilute your past mistakes.
Time commitment: medium. Look for a secure card that reports your credit activity to the three major credit bureaus. You can also consider an alternative credit card that does not require a deposit.
How fast it works: Months. The goal here is not just to have another card, but you can slightly increase your score by increasing the depth of your bankroll. Instead, your goal is to keep your balance low and establish a track record of timely payments.
12. Get a loan for rent and utilities
The rental report service can add your timely rent payment to your credit report. Rent payments are not considered in all scoring models included in Vantage Scores, but not, for example, in FICO 8. However, there is a record of rent if someone who will become a lender looks at your report, and a long history of consistent payments only helps.
Experian Boost can also help, but it’s a more limited approach. When you link your bank account to the free Boost service, Boost analyzes payments, phone charges, and streaming costs. Then, select the payment you want to add to your Experian credit report. Creditors benefit from this additional payment history when they use Experian data to retrieve FICO8.
- Impact: different.
- Time required: little. No additional time is required after the initial setup.
- Operating speed: Boost operates instantaneously. Rental reports vary, and some services provide an instant “overview” of payments for the past two years. Without them, creating a timely payment record can take months.
Having an account with an extra balance in good standing can benefit your balance, especially if it’s the kind of balance you don’t already have. If you only have one credit card, you should take out a loan. Construction loans are a cheap option. Ensure the loan you are considering has added reports on all three credit bureaus.
If you only have one loan or several credit cards, a new credit card can be beneficial. In addition to improving your credit combination, you can reduce your total credit spending by making more loans available.