Your credit history is one of the most vital aspects of your financial health. Not only does it help you qualify for loans but it also determines the interest rates and fees that the lender will charge you. A good credit history, thus, translates to a stable and successful financial future. Similarly, a good credit score can pave your way to better jobs, accommodation, even allows you to turn on your utilities.
But before you take our word for it, let’s understand what is a credit score and how to improve it!
What is Credit Score?
A credit score is typically a number or category that shows lenders how good or bad a credit risk you can be to the lender. Usually, the higher this number is, the lower the credit risk you are to a lender.
You must also know that your credit score is determined by your credit history, which is basically your track record of tackling loans and bills in the past. So if you have a good record of dealing with credit well in the past, it is easier for you to qualify for loans at better interest rates.
Think of this as your high school transcript that reflected your educational record as well as your grades. Much like how it can impact which colleges will accept you, your credit history can impact if the lenders will accept you. You can credit check yourself regularly by getting your credit report from a reliable credit reporting agency, such as Transunion and Experian.
The three most important things that your credit score can determine are:
How much amount you can borrow?
If the lender considers you to lend you a loan.
At what interest rates you can get a loan?
Strategies to Improve Your Credit Score
There is no quick fix for a bad credit score. But the good news is that with a few mindful strategies you can improve your credit score a great deal. Read on to find out how to build your credit score faster!
Pay Off Bills and Debts ASAP
Your payment history impacts your credit score the most as it stays on your report for a long time. In fact, no strategy can help you improve your score if you are late on your payments. So, every time any of your accounts are marked delinquent, it directly affects your credit standing.
If you have missed a payment by 30 days or more, it is best to call the creditor right away. Try to pay it off and request your lender to consider not reporting the missed payment to the credit bureaus. Even if the lender reports it, it is always better to stay current on all accounts. Therefore, bringing discipline to your credit behavior after a misstep can quickly undo the damage and eventually improve your score.
Get a Secured Credit Card
Another great strategy to improve your credit score is getting a secured credit card, like Self Visa Credit Card. This type of card gives you access to secure credit, which means it is backed by a cash deposit. You make the payment upfront and the cash deposit is usually the same as your credit limit.
Visa Credit Card gives people with no credit history or poor credit a chance to build their credit, regardless of their credit standing. Thus, a secured credit card is like a normal credit card, only your on-time payments will help you improve your credit.
Increase Your Credit Limits
The amount of debt you have used in comparison to the credit limits of your credit cards also affects your credit score. So, the lower is your credit utilization, the better will be your credit score. A good strategy to bring down your credit utilization is to increase your credit limits.
For instance, if you have a debt of $100 with a $500 credit limit, your credit utilization is 20%. But if you have a debt of $100 with a $1,000 credit limit, your credit utilization goes down to 10%. Often lenders are willing to increase your credit limit as long as your credit score is improving. This is mainly because it shows that you have the ability to handle your credit well. So, if you have used a credit card for at least 6-12 months, you should ask your creditor to boost your limit.
Maintain a Credit Mix
While this last strategy doesn’t really do much to improve your score, having a healthy credit mix boosts your overall credit standing anyway. What credit bureaus see in it is the evidence that you are capable of managing different types of credit.
For instance, mortgages and auto loans are both installment loans with a fixed payment. But a home equity credit or credit card is a different type that shows a revolving credit with variable payments.
A good credit mix boosts your chances of approval for a loan as it shows the lenders that you can handle different types of credit products. That said, it is also important to remember that multiple applications for credit cards reflect negatively on your credit history.
Often a low or bad credit score is due to the lack of discipline, little/no credit history, or a combination of both. So unless any unusual circumstance has affected your score, such as a loss of a job, you have to take due diligence in understanding your financial position and use the above strategies to improve your credit score.
If you find managing your credit too overwhelming, let the Doctor Money app do the grunt work for you. The Doctor Money app helps you manage your personal finances to bring down debt and boost your credit score. So if life has knocked you off track, use our app and recommended strategies to credit check yourself to rebuild your credit faster and better!