A good credit rating can lead to lower interest rates, better loan approvals, and even give job opportunities. If your score is currently lower than you would like, there are things you can do to improve it. By knowing the basics of how credit bureaus work, you can start boosting your credit rating today.
What is a credit rating?
“Credit rating” refers to the overall strength of your finances. Fair Isaac Corporation usually calculates this three-digit figure (FICO Score). Fair Isaac takes data from your credit report and crunches the numbers through a series of calculations. Your payment history (especially how your accounts look right now) and the amount of outstanding debt you have are taken into consideration. The length of credit, amount of new credit, and type of credit you have are also reviewed.
Before issuing a new credit line, most lenders check your credit rating. You may be accepted or denied (approved or declined) based on your credit rating. That is why it is important to maintain a good score, and it can be easy to do so. The following are several steps you can take to help you boost your credit rating.
Make Payments on Time
The easiest and best way to raise your credit rating is to avoid late payments. By paying all of your bills on time, you show lenders that you are reliable and consistent. If you have a hard time remembering when payments need to be made, there are things you can do to make it easier. Find a method that helps you pay on time, every time. Here are some suggestions:
- You can even call your lenders and ask to have the due date changed to a certain day of the month.
- Have them automatically taken out of your checking account.
- Have reminders sent to your email.
Pay Down your Debt
Paying off your debts (especially credit card debts) is another way to boost your credit score. Try to use 30% or less of your credit limit. So if you have two credit cards that each have a ,000 limit, you have a total credit limit of ,000. Keep your total outstanding balances under ,000. This will lower your credit risk and help you have a better credit rating than you would if the accounts were maxed out.
Keep Credit Accounts Open
If you have had a credit card for a long time and don’t use it much, try to stop yourself from closing it. If you have a good history of on-time payments, it may be in your best interest to keep the account open. It will show lenders that you have a longer credit history. Even if you cut the card up, and don’t use it, it is better than closing the account.
Use Your Cards Wisely
Raising your credit score does not mean you get rid of your credit cards or not use them. Before you make a purchase, think about how you will pay it back. It isn’t play money! Look into what you can and cannot afford before saying “Just Charge It”.
If you decide you want a new loan or credit card account, try to keep all of your application submissions within a 14-day window. Once you have the credit card or loan, pay it down as best you can and ALWAYS make on time payments. This will improve your credit rating over time.
These are just some of the ways to boost your credit rating.
Managing your finances correctly will help boost your FICO or BEACON score.
