Do you know what your credit score means? No matter how much you know about this financial measure, it’s important to realize the importance of credit score in our everyday lives.

At its core, a credit score is a three-digit number that represents your creditworthiness – essentially, how likely you are to pay back borrowed money on time. Credit scores are used by lenders to assess the risk involved in lending you money, whether for a credit-card, car loan or mortgage. Credit scores can be used to qualify you for lower interest rates and better terms on loans. A low credit score will make borrowing money more difficult and expensive.

What can you to do improve your credit rating? It’s not a quick fix, but you can do things to build up a good credit history. There are many ways to improve your score, from paying your bills promptly and keeping your credit usage low to regularly checking your report and disputing any mistakes.

We will discuss credit scores and how you can improve them in this article. We have the information you need, whether you’re new to credit or are trying to rebuild your own score. So, let’s get started!

Understanding Credit Scores

What is a Credit Score?

Credit scores are three-digit numbers that represent your creditworthiness. This is the likelihood that you will repay money borrowed on time. Credit scores are used by lenders to determine the risk involved in lending you money for credit cards, auto loans, and mortgages. FICO is the most widely used model of credit scoring. It ranges from 300-850.

What factors can affect your credit score and how do you improve it?

PAYMENT HISTORIC

Payment history makes up 35% of the FICO score. Your payment history could be adversely affected by missed or late payments as well loan defaults.

AMOUNTS OWED

Your FICO score is 30% based on the amount owed, after taking into account both your total debt and credit usage. Credit utilization is the percentage of available credit that’s being used. High levels of debt or credit utilization will negatively affect your credit score.

The length of credit history

• The length of credit history is 15% of the FICO score.
• How long have you had credit accounts and how frequently do you use them?
• A longer credit history will help you improve your score.

NEW CREDIT

• Your FICO score is 10% higher if you have new credit.
• Look at the number of new credit cards you have opened in recent months.
• You can damage your score by opening too many new accounts.

CREDIT MIX

• Your FICO score is 10% based on your credit mix.
• You can check your credit card, loan, and mortgage accounts.
• Credit of all types can improve your credit rating.

How to Improve Your Credit Score

Pay your bills on time

• Your payment history is the main factor that determines your credit score. Therefore, paying your bills in full and on time is essential.
• You can set up automatic payments and reminders so that you never miss a payment.

Keep your credit usage low

• Your credit score can be negatively affected by debt levels and credit usage.
• Your credit card utilization should not exceed 30% of your total credit.

CHECK YOUR REPORT OF CREDIT ROUTINELY

Check your credit report to ensure accuracy. Errors can damage your score. It is important to check your credit report for accuracy, as errors can negatively impact your credit score. You have the right, once a year, to receive a free report from each major credit bureau. This will ensure that your report is accurate and current. You can protect your reputation and keep track on your creditworthiness by taking advantage of the opportunity.

DISSUTE ANY ERRORS IN YOUR CREDIT REPORT

• You can dispute errors in your credit report with the credit bureaus.
• Credit bureaus have 30 days to investigate your dispute and respond.

AVOID CLOSE OLD CREDIT ACCOUNTS

• Closing old credit accounts may hurt your score because the length of credit history is used to calculate your credit score.
• Even if you don’t use them, keep your old credit accounts.

DON’T APPLY FOR TOO MUCH NEW CREDIT AT ONCE

• Open too many credit accounts all at once to hurt your credit score.
• Apply for credit only when you really need it, and are confident that you will be approved.

Consider a secured credit card or a credit-builder loan

• You can improve your credit rating by using a secured credit or credit-building loan if you are having trouble getting approved for credit.
• You can get a secured card by putting down a deposit, which becomes your credit limit.
• It’s easier to be approved for a secured card because the lender is less likely to take a risk.
• Use a secured card responsibly to establish a good credit history. This will improve your credit rating over time.

A CREDIT BUILDER LOAN IS ANOTHER OPTION TO BUILD CREDIT.

• This type of loan allows you to borrow a smaller amount and pay it back over a specified period of time.
• Your lender will report your payments to credit bureaus. This can improve your credit rating and establish a good payment history.
• Improving your credit score is a long-term process that takes effort and time.

Also read:

Credit Score: Here are 5 Major Factors that can Influence Your Business Loan Approval

Four Simple Ways You Can Improve Your Personal Credit Score

Are you an Average Person? What Your Credit Score Says About You

Why You Should Complete a Credit Background Check When Hiring New Team Members

FAQ

What is a good credit score?

A credit score between 300 and 850 on the FICO scale is considered good. The minimum credit score needed to qualify for credit and loans can differ depending on your lender, as well as the type of credit that you’re seeking.

How often should I check my credit score?

Check your credit report and score at least once per year to ensure their accuracy. You can obtain a free credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once a year through annualcreditreport.com.

How quickly can I improve my credit rating?

It takes time to improve your credit score. However, there are steps you can take to improve your score over time. These include paying your bills on-time, maintaining a low credit utilization, and disputing errors on your report.

Is it true that closing a Credit Card will hurt my credit score.

Closing an old account can damage your credit score. This is especially true if the account has a long history of credit. If you still owe money on your other credit cards, it can increase your credit usage and hurt your score. It may be worth the loss in your credit score if you close a card due to a high annual charge or to avoid being tempted.

CONCLUSION

Good credit scores can help you qualify for favorable mortgages, lower interest rates and better credit cards. Understanding the factors that affect your credit score, and taking steps to improve it, can help you secure a better financial future.