There is a continuous rise in people’s aspirations and their lifestyle expenses. Consequently, a lot of people either take a loan or use a credit card to shop. When you take a credit, you have to pay it back in time too. If you hold a poor credit score, it can make it quite challenging for you to get an apartment or loan, or credit card in the future. Alternatively, even if you do get the credit, the rates may be very high, and that can make it challenging or rather expensive for you to pay back. So, if you have a bad or poor credit score (669 or lower as defined by FICO), you may be wondering what you can do to improve it. The situation may seem hopeless for you, but let us tell you, there are some things that you can do to improve your credit score. Here, we will discuss them one by one.
Repay your bills on time
‘Absolutely no strategy to better your credit score will work if you do not pay your bills in time,’ comments Freddy, an educator who offers online ‘do my accounting homework services’.
Why? See, your payment history is the most significant factor determining your credit score. More so, a single late payment can stay on your credit report for about seven years. So, what can you do if you are in no situation to pay? If you miss a payment by 30-days or more, immediately call your creditor. Request them not to report the same in your credit report and make the payment instantly. Even if it is reported, the impact of a missed payment will fade over time. If you display positive credit behavior, it can offset the damage and better your score after a misstep. In case you do not have enough to pay back, prioritize your debt, and repay.
Know when the issuer reports the payment history
You can contact your credit card issuer and inquire about when the balance is reported to the credit bureau. It is usually the last day of the billing cycle or the closing date, and this date is not the same as the due date in your statement. There is a term known as credit utilization ratio. What is it? It is the credit amount utilized compared to the credit available. There is a ratio for the overall credit card usage, too, for every card.
‘The recommended credit utilization ratio for individual cards and overall should be aimed at less than thirty percent,’ points out Nadia, an online precalculus tutor.
There is an insider tip that we would like to share with you. To boost your credit score, you should keep this ratio lower than ten percent.
Let us explain how the credit utilization ratio is calculated.
Suppose you have two credit cards.
Card 1 has a credit limit of 7000 USD, and the balance remaining is 2500 USD.
Card 2 has a credit limit of 8000 USD, and the balance remaining is 2000 USD.
So, the credit utilization ratio will be:
Card 1 – 36 percent. (2500/7000) – This ratio is quite high.
Card 2 – 25 percent (2000/8000) – This ratio is perfect.
Now, there is another thing you need to note, which is your overall credit utilization ratio. So, in this example, your overall credit utilization ratio is 30 percent, which is decently good. However, it would be best if you tried to keep it lower than thirty.
The problem is that, even if you clear the balance every month, if you repay the payments after the reporting date, your reported balance may be high, which will disturb your ratio, and the resultant ratio may be inflated.
So, what should you do? Clear your bills before the closing date.
Dispute Credit Report Errors
As per the Fair Credit Reporting Act, you have the complete right to an accurate credit report. According to this right, you can dispute any credit report errors by intimidating the relevant credit bureau, which should investigate the dispute. The intimation must be filed within 30 days.
There are mistakes, which arise from easily identity theft, interchangeable Social Security numbers, addresses, birthdays, or wrong reporting by creditors that can hurt your credit score,’ comments Rosy, an educator who offers assignment help Australia services.
So, scan through your credit report, check for errors, and if there are any errors, get them rectified immediately.
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Apply for a new credit account, only if required
Never open a new credit account only to add to your portfolio for a better credit mix. It will not do any good to your credit score. Holding unnecessary credit can harm your credit score in more ways than one. Also, do not make too many hard inquiries for your credit report, as that too can lower your credit score.
Do not close unused credit cards
One of the smartest ways to keep your credit score high is by keeping the unused cards open. Of course, if they bring you an annual fee, you can shut it down. Otherwise, it is best to hold it. Why? This will increase your credit utilization ratio.
So, these are the five most effective ways to improve your credit score. Have more tips to add? Let us know in the comments below