Increasing your credit score from fair to very good could save you almost $50,000. In life, your credit score is more important than you might think. A good credit score is influential in securing loans, mortgages, and credit cards with favorable terms and will save you money when your score is high.
A good credit score can also help you get lower interest rates and insurance premiums, making it easier to manage your finances. A survey by LendingTree demonstrates that lower interest rates and premiums for someone with very good credit (740-799) could end up saving $49,462 annually in comparison to someone with fair credit (580-669).
Here are seven easy ways to improve your credit score.
1. Keep an Eye on Your Credit Report
The first step to improving your credit score is to check your credit report. You can get a free copy of your credit report from each of the three major credit bureaus once a year. It’s simple and quick to set up a profile on Experian or a similar online service; log in once a month and check your score.
Check your report carefully for errors and inaccuracies. If you find any errors, report them to the credit bureau immediately. Errors can hurt your credit score, so correcting them as soon as possible is important before those mistakes ruin your credit further.
2. Pay Your Bills on Time
One of the most important factors that affect your credit score is your payment history.
Late payments can hurt your credit score, so paying your bills on time is important. To make this easier, set up automatic payments for bills like rent, utilities, and credit cards to ensure you never miss a payment. If you do, try to make it up as soon as possible.
The longer you wait to pay, the more it can hurt your credit score.
3. Keep Your Credit Utilization Low
Your credit utilization is the amount of credit you’re using compared to the amount available. The lower your utilization score, the higher your credit.
For example, if you have a credit card with a $7,000 limit and $3,500 of charges, your credit utilization is 50%. High credit utilization can hurt your credit score because you have less credit available, so it’s important to keep it low. Experian recommends keeping your credit utilization below 30%.
For example, if your total credit limit is $10,000, your total credit card balance shouldn’t exceed $3,000. “Generally, a low credit utilization ratio indicates that you’re doing a good job of managing your credit responsibilities because you’re far from overspending,” according to Experian.
Also, if you have multiple credit cards, spread out your charges across all of them instead of using one card heavily.
4. Don’t Close Old Credit Accounts
The length of your credit history is another factor that affects your credit score. This means that closing an older account will have more of an impact on your score than closing a newer one.
The longer you’ve had credit, the better it is for your score. Don’t close old credit accounts, even if you’re not using them anymore. Keeping these accounts open can help increase the average age of your credit accounts and improve your credit score. It also helps lower credit utilization because older accounts contain unused credit.
5: Apply for Credit Sparingly
Every time you apply for credit, it appears on your credit report as a hard inquiry.
Too many hard inquiries can hurt your credit score, so applying for credit sparingly is important. Each application can shave off a couple of points, even if you’re approved. The effect of applying for credit will be different from person to person. Someone with lower credit will likely be affected more than someone with better credit.
Only apply for credit when needed, and try to limit your applications to one or two a year.
6. Consider a Secured Credit Card
A secured credit card can be a good option if you’re trying to build or rebuild your credit. All major credit card companies offer secured credit cards, like Visa, Mastercard, and Discover.
A secured credit card is a credit card that requires a cash deposit as collateral. The deposit amount usually becomes your credit limit, and the secured card acts like a regular credit card. The key is to use your secured credit card responsibly by making on-time payments and keeping your credit utilization low.
Don’t Be Afraid To Ask For Help
Improving your credit score can be a lengthy journey, with many steps that may not be widely known. However, it’s perfectly fine to seek assistance in this process. Numerous financial advisors offer finance courses that provide guidance on enhancing your credit score, paying off debt, and growing your savings. You could reap significant long-term benefits by reaching out for additional support and following their step-by-step guidance.
Over time, your responsible credit use will help improve your credit score.
Improving your credit score takes time and effort but is worth it in the long run. A good credit score can help you get better loans, credit cards, and insurance terms. By following these seven easy tips, you can start improving your credit score today.
This article was produced by Financial Pilgrimage and syndicated by Wealth of Geeks.