How Can I Improve My Credit Score?
Has your credit rating been completely ruined because of your debt? Are you struggling to get approved for a credit card or loan? Higher credit scores are more likely to be approved by lenders, which is why it is important to maintain a good credit rating. Although it might take some time, the sooner you start repairing your credit, the faster your score will go up. In this blog, our consumer law attorneys explain some of the things you can start doing to improve your credit score.
How Is My Credit Score Calculated?
Reporting agencies use a mathematical algorithm with the information from one of your three credit reports to determine your score. According to Barry Paperno, consumer credit expert, “What makes one score go up versus down is always going to be the same—it just depends on the degree.” The following things are taken into account to determine your score:
- Your payment history on loans and credit cards
- How much credit you regularly use
- How long your accounts have been open
- The types of accounts you have
- How often you apply for new lines of credit
Don’t Be Late on Your Bills
Lenders only want to open lines of credit for people who will be able to repay their loans. Lenders view your payment history as a good predictor of whether you have enough income for a loan. This means if you pay all of your monthly bills on time, it can positively influence your credit rating. But if your payments are late or you have to settle an account for less than the value of the loan, it can negatively affect your credit score. Setting up automatic payments on your accounts is a good way to ensure your debts are paid on time each month.
Keep Low Balances On Your Credit Cards
Reporting agencies also use your credit utilization ratio to calculate your credit score. This is the total amount of revolving credit you’re using divided by the total amount of revolving credit you have available. So for example, if you use $2,000 each month from your credit cards and your total credit limit for all of the cards you have open is $10,000, your credit utilization ratio would be 20%.
Most lenders look for applicants with ratios of 30% or lower. People with high credit scores tend to have very low credit utilization ratios. A low credit utilization ratio is a signal to lenders that your credit cards aren’t maxed out and you are able to responsibly manage your expenses.
To improve your credit utilization ratio, do the following things:
- Pay off debt each month and keep low balances on any credit cards you have open
- You can become the authorized user on the account of a person who responsibly uses credit
Only Apply for New Credit Accounts If You Really Need To
Don’t open a credit card account at a retailer just because the person behind the counter says you can save $15 on a small purchase. Only open accounts for major purchases that you absolutely need. Opening accounts just to improve your credit score can have the opposite effect because reporting agencies will see you have too many “hard inquiries.”