Each person has a three-digit credit score that is based on their finances which helps lenders determine your ability to pay back a loan. A typical credit score ranges from 300-850. Higher credit scores often indicate that a person is financially reliable when it comes to paying their bills and using their credit. Lenders are usually more willing to loan money to people with higher credit scores at better interest rates.
Credit scores can be used as a tool for screening new hires. Potential employers may check your credit score to assess whether you are a good fit for the job. They are looking for information on financial irresponsibility. Poor handling of finances may indicate that you are not a good fit for the job’s responsibilities.
Factors that impact your credit score
Credit reporting companies use a scoring model based on information that is on your credit report to create a credit score. The credit score is based on the following factors:
- Bill paying history – represents 35% of the score.
- Current debt – 30% of the score is existing debt.
- Length of credit history – 15% of the score is based on how long you’ve had credit accounts.
- Credit mix – type of credit is 10% of the credit score.
- New accounts – 10% of the score is based on accounts opened during a short amount of time.
Certain negative financial events can lower your credit score. These include a foreclosure, bankruptcy, a debt sent to collections, and a repossession. The credit score is lowered for each individual negative item on your credit report. Negative reports can impact your credit score for up to seven years.
Tips and tricks to boost your credit score
If your credit score has dipped and you want to increase it, there are some steps that you can take to boost it. They won’t erase the negative events on your credit report, but they will help you rebuild your credit and demonstrate that you are financially responsible.
1. Pay off credit card balances strategically
Ensure that your balance is low at the time the card issuer reports to credit bureaus. Ideally, you want to be using less than 7% of your credit utilization when they report to the bureau. This ensures that your utilization is low when the credit bureaus calculate your credit score. A simple method of doing this is to pay off your balance prior to the end of the billing cycle or pay off an amount several times during the month to keep the balance low.
2. Use less of your credit
Credit utilization of less than 30% will improve your credit. Try to reduce your debts as much as you can.
3. Request higher credit limits
You are eligible for higher credit limits when your income increases or if you’ve had a number of years of positive credit experiences. When credit card companies raise you credit limit, your credit utilization percentage goes down which has a positive impact on your credit score.
4. Become an authorized user
If one of your friends or family members has great credit, you can request to become an authorized user on their credit card. This is known as “credit piggybacking.” The authorized user status allows you to benefit from the primary cardholder’s positive credit. The primary cardholder is not required to give you their card or even have you use it to benefit from the authorized user status.
5. Pay your bills on time
Your bill paying history is the largest factor in calculating your credit score. No strategy will raise your credit score if you continue to miss your payment deadlines. If you do happen to miss a payment by more than 30 days, call your creditor immediately. Pay your debt as quickly as possible and ask your creditor if they will stop reporting the missed payment to the credit bureaus.
6. Dispute any errors on your credit report
If your score has been lowered, request a report from the three major credit bureaus through Annualcreditreport.com and look for mistakes. The mistakes could be payments that are marked late when they were not, negative information that is over seven years, and if someone else’s credit activity has been mixed with yours.
7. Deal with collections accounts
Pay off any bills from collections accounts. This will eliminate any threat of being sued for the debt. You may also be able to persuade the collection agency to stop reporting the debt once it is paid.
8. Use a secured credit card
A secured credit card may help you rebuild your credit score. This type of card is backed with a cash deposit. You pay for the card upfront. The deposit amount is usually the same amount as the credit limit that is on the card. A secured card can be used the same as a regular credit card. The on-time payments to a secured card account will help to rebuild your credit.
9. Get credit for rent and utility payments
On-time rent and utility payments can enhance your credit score. The three major credit bureaus include your rent payment history, but not every scoring model includes them. A rent reporting service, such as Credit Rent Boost, will ensure that your rent payment history is on your credit reports.
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