Ever wondered why your loan application did not earn you the interest rate at which you had hoped for? The issue is basically one: your credit score. Better rates of interest and conditions are given to individuals whose credit scores are high. So how will you increase your credit score quickly? This article will walk you through a proven method to enhance your credit score, enabling you to achieve those lower interest rates that you wanted.
Understanding Your Credit Score
Your credit score is like a report card for your financial activities. All these factors contribute heavily towards this important number.
What is a Credit Score?
A person’s level of creditworthiness is measured using a three-digit score known as the “credit score.” The higher the figure, the better the client’s credit history, or rather, the higher chances are of getting low-priced loans.
Factors Affecting Your Credit Score
There are many different aspects that can affect your overall credit rating. Knowing these factors can help you manage and improve it.
Payment History
This has been discovered by researchers to account for 35% of an individual’s FICO score. For instance if someone missed only one payment, his/her points fell down by 100 marks.
Credit Utilization
The last factor within this category involves something referred to as debt-to-credit ratio. It measures how well a person manages his fundamental financial activity with respect to available credits (Mitchell).
Length of Credit History
In terms of length or duration, age matters in developing what might be termed as people’s financial reputation and character (Layton).
New Credit Inquiries
Any time someone gets new debts; it would negatively impact on their FICO rating. This should not be taken lightly since ten percent makes up a significant part of an individual record.
Types of Credit Used
Mixing various types of accounts shows that customers have experience in managing multiple obligations simultaneously (FICO Scoring Models Frequently Asked Questions 2).
Importance of a Good Credit Score
It is not just about being able to brag about having an exceptional credit history. Having good credit scores has its positives.
Lower Interest Rates
When people have higher FICO scores, their APRs are generally lower that can save a lot of money over the life of a loan.
Better Loan Terms
Higher credit scores mean better borrowing conditions like long-term repayment periods for those whose financial capabilities allow them or even higher loan amounts.
Higher Credit Limits
Having vast limits on your card could imply that you can be trusted with more cash from lenders (Mitchell).
Access to Premium Credit Cards
These products usually come with more points and incentives than most individuals think; however, only those customers who have very high ratings can qualify for such services.
The Trick to Raise Your Credit Score
Are you ready for this trick? It all depends on how well you manage your credit utilization ratio. Here’s what you need to do:
Understanding Credit Utilization
Credit utilization is the percentage of your total available credit that you’re using now. For instance if you currently owe $2,500 on a $10,000 limit card then your debt-to-credit ratio equals {25%.
How to Implement the 30% Rule
In order to boost your credit score one of the best solutions is by keeping the credit utilization below 30%. There are several strategies that can help you achieve this.
Pay Some Balances
If you want to reduce your credit utilization ratio, then paying down your current credit card balances directly is the simplest way. Focus on paying off those with higher interest rates first.
Increase Credit Lines
You may request for raising your credit card limits if it’s feasible. Provided you don’t increase your expenditure, this may help decrease immediately your credit as a percentage of total available balance.
Watch Your Spending Habits
Always monitor how you spend. Avoid going beyond what was agreed in using these cards and ensure that at least once every month you clear all the dues.
Disputing Errors on Your Credit Report
Credit score could be affected significantly when there are inaccuracies reported on it. Read these tips on how fix them.
Identifying Errors
Check for errors in your report regularly. Misprinted names, wrong accounts and conflicts contained in their records should be avoided given any eventuality is expensive and leads to changed terms such borrowers face from lenders.
Filing a Dispute
Once an error is identified, lodge a complaint with the organization that prepared document; they must investigate and correct any mistakes found.
Becoming an Authorized User
Another method of boosting your scores includes being an authorized signatory of another person’s card if they have a good record then yours will also improve correspondingly.
Using a Credit-Builder Loan
The purpose of building credits loans is to assist people to raise their borrowing scores while promoting better financial management habits. A bank holds some amount of money as long as payments are made into it until completion when remaining funds are provided and payment history reported by means of three leading credit bureaus takes place. Monitoring Your Progress To see whether or not what has been done is paying off, one has to keep an eye on his/her credit record.
Using Credit Monitoring Services
Monitoring services keep you updated as soon as anything changes in your credit report.
Regularly Checking Your Credit Report
You can access a free annual report from each of the three major credit bureaus. Regularly check these reports for inaccuracies and monitor your progress.