5 smart ways to boost your credit score
What's the story
Improving your credit score is important for your financial health, bringing better loan terms, lower interest rates, and higher borrowing power. However, a sustainable way to improve your credit score is a mindful understanding of the factors affecting it and how to work around them. Here are five practical rules that can help you boost your credit score over time without quick fixes/risky strategies.
Timely payments
Pay bills on time
One of the most important factors that impact your credit score is your payment history. Paying your bills on time, every time, shows lenders that you're reliable. Set reminders or automate payments to ensure that you never miss a due date. Even a single late payment can bring your score down, so make timely payments your priority as a first step to improving creditworthiness.
Utilization ratio
Keep credit utilization low
Credit utilization is the percentage of available credit you're using at any point in time. Keep this ratio below 30% by controlling your spending and paying down your balances regularly. High utilization indicates you're struggling financially, which can bring your score down. By keeping your balances low compared to your overall credit limit, you demonstrate to lenders that you manage debt responsibly.
Account management
Avoid opening too many accounts quickly
Opening multiple new accounts within a short period can hurt your credit score. Each application leads to a hard inquiry, which could lower your score temporarily. Further, new accounts lower the average age of all accounts, another scoring model factor. Be strategic about applying for new lines of credit, and only do so when necessary.
Regular checks
Monitor your credit report regularly
Regularly reviewing your credit report can help catch errors or signs of fraudulent activity that can hurt your score. Get free reports from major bureaus once a year and look for inaccuracies like wrong personal details or unknown accounts. Dispute any discrepancies immediately with the reporting agency to ensure your financial behavior is accurately reflected.
Credit Variety
Diversify your credit mix wisely
A diverse mix of credit types (installment loans, revolving accounts, etc.) can positively influence scores, provided you manage them well. Lenders see borrowers with varied types of debt as more experienced in handling different financial obligations responsibly. However, don't get unnecessary debt just for diversification. Instead, focus on managing existing obligations effectively while considering future needs carefully.