The Complete Guide to Improve Low Credit Score
Improving your finances is a long term process. You cannot get it done overnight. Having a high credit score will let you enjoy low mortgage interest rates, better credit card offers and favorable insurance rates. We can understand that changing your credit habits at once is not possible. But by following a few tips you can improve your low credit score with time.
First Learn What Negatively Impacts Your Credit Score
Your credit score is generally based on five key factors. Getting these five factors right will help you to improve your credit over time.
- The most important factor is your payment history as it will show if you pay your debts on time.
- Next is credit utilization. It describes the amount of credit that you have utilized in relation to the total credit limit offered to you.
- Credit age describes how you have maintained your credit accounts and for how long.
- Credit mix is the different variety of credit accounts that you have. Having more than one type of credit shows you can manage a range of credit products.
- Inquiries will show how often you have applied for credit and what types of credit.
Get Rid Of Largest Debts First
Once you have understood about the various factors that impacts your credit score, you should start focusing on getting rid of your debts. First, target the largest debt. Paying off the largest debt will save you a lot on interest charges. Your credit score is mostly based on your revolving debt and the smaller your total debt is the better off you will be. The general rule is to keep your credit balances under 30% of what the available limit is. But if you are looking to improve your score considerably then you need to aim for 10% or lower utilization.
No Matter What, Repay Back On Time
The best way to improve your credit score is to make on-time payments. Your payment history contributes up to 35% of your credit score and a single missed payment can be seriously damaging. So, whatever you do, make payments on time. You can sign up for auto payments or set reminder to make sure you never miss the payment date.
Go For A Secured Credit Card.
A secured credit card is an excellent tool to improve your credit score. When you apply for such a card, you have to pay a lump sum upfront which is considered as collateral. In return you will receive a credit card with that exact amount. All the payments that you make will be then reported to the credit bureaus and in return you will receive positive remarks on your credit history. It will help you to improve your credit over time.
Get A Credit Builder Loan
If you do not prefer a secured credit card then you can try applying for a credit builder loans. You can get such loan from credit union or a local bank. Such loans offer a favorable credit-building strategy. Unlike typical loans, you will not be able to access to the borrowed money straightaway. Instead, the bank will put it in an interest-bearing account. They will hold it in that account while you make monthly payments on the balance. Only after you have paid off the balance you will get access to the cash. If you have a good payment history it will reflect on your credit report.
Get A Co-Signer
Finding a co-signer who has a good credit score is a simple way to make your credit score better. But be aware because if you fail to repay the credit score of your co-signer will be get dragged down right along with yours.
Check For Errors And Get Them Fixed
You will be surprised to know how damaging a simple error in your credit report can do to your credit score. You may have good credit but you never know when it may turn down due to any mistake made by the credit bureau. Therefore, make a habit of getting your credit report checked every year. You can get your credit report from all three credit bureaus. You will just need to fill up a form with the credit bureau if you spot any errors or want to add or remove any information to your account.
Rebuilding credit score is a long term process marathon, not a sprint. It is necessary to have patience, be organized and responsible with your finance in order to boost your credit score.