Your credit score is more than just a meaningless three-digit number.
Lenders use your credit score to help them decide whether you are an ideal candidate for a loan or credit card.
If your credit isn’t quite where you’d like it to be, don’t worry. It can be improved with a few simple tactics.
Knowing how to improve your credit (and maintain it) is essential for every adult.
Factors That Affect Credit Score
Prior to working on your credit score, it’s important to get any available information about which factors are affecting your score the most.
Payment history, credit history length, amount of debt, credit max, and amount of new credit are some of the areas used to calculate your credit score.
These factors can give you a better understanding for what needs to be improved, and what areas are okay.
Credit Card Utilization Ratio
The credit card utilization ratio is calculated by adding your credit card balances to any given time and dividing the amount by the total credit card limit.
For example, if $2,000 is charged each month and the total credit limit across all your cards is $10,000, the utilization ratio is 20%.
Typically, lenders prefer to see ratios lower than 30%. This ratio will indicate to the lender if you have maxed out your credit card and how well you can manage credit debt.
To positively influence this ratio, you should pay off debt as quickly as you can and keep credit card balances low.
Another way to positively influence this ratio is becoming an authorized user on another person’s account. But you should only do this if they use their credit card(s) responsibly.
Pay Bills on Time
Lenders reviewing your credit report are interested in a few pieces of information, including how reliably your bills are paid.
Even though the past payment history could be an indication of future payment performance, it doesn’t have to be that way.
To make up for a bad history and boost your credit score, it is ideal to pay your bills on time each month. And this doesn’t just pertain to paying your credit card bill. Auto loans, student loans, rent, mortgage, utilities, and more are included in this report.
Late payments in the past have less of an impact on your credit score if the payments made in the present are early or on time.
Paying on time doesn’t have to be difficult. It can be as simple as setting a reminder on your phone’s calendar, setting up automatic payments with the company, or leaving yourself a reminder on a physical calendar.
But if you can, paying the bill as soon as it comes in is ideal. This way you know the debt is settled and the potential to forget the bill is eliminated.
Know When to Open & Close Credit Cards
Don’t open accounts just for the sake of doing so.
It most likely won’t boost your credit score.
Opening unnecessary credit cards can actually harm your credit score in multiple ways.
These credit cards can cause you to spend outside of your means, create too many inquiries on your credit report, and accumulate debt.
If a credit card doesn’t charge an annual fee, it’s best to leave it open because closing an account may increase your credit utilization ratio.
Monitor & Dispute Inaccuracies
It’s important to keep an eye on your credit report to monitor for potential inaccuracies.
Verify that the information listed on the report is correct, but if you find an error it’s important to dispute it immediately. An error could be a reason your credit score isn’t as high as you’d like.
How Long Does It Take to Rebuild Your Credit Score?
Rebuilding your credit score doesn’t happen overnight — time is your ally in rebuilding your credit.
The length of time it takes to rebuild your credit depends on the reasons behind the charge, like a late payment or declaring bankruptcy.
Some public record items can remain on your credit report for upwards of seven years. Bankruptcies can remain on your credit report for 10 years.
Even though the negative occurrences can remain on your credit for several years, there’s no better time than the present to work on your credit score.
If you need help getting started or would like to learn how Hudson River Community Credit Union can help boost your credit score, contact our financial experts today.
Don’t let bad credit stop you from fulfilling your dreams of owning a home, starting a business, or purchasing a new car.