The credit score is a comprehensive evaluation of all your past repayments, bad loans, interest rates, credit utilization rate, and amount owed. It’s more like a track record of your money management skills rather than just a result of a few good actions.
So the amount owed is just a small factor in the credit scoring process. The debt repayment will only be relevant to your credit score until a certain point in time. After that, the score will just be a reflection of your entire credit history with no special thanks to that one debt you paid off.
Fortunately, you can formalize a plan and build your credit score one step at a time. So, without further ado, let us look at 5 simple methods to improve your credit score.
Simple Ways to Improve Credit Score
1. Regular Monitoring
The first thing to do is to know what’s going in your credit reports. Just visit the top credit bureau websites, like Experian, Equifax, or TransUnion, and request a report at a nominal fee after filling in your details. You can also visit their partner sites for free reports.
Keeping tabs on your credit report helps you alert the proper authorities before it’s too late. Credit reports from various credit bureaus may not reflect your actual financial and risk status. It is imperative to analyze the credit reports and get rid of any errors so that the final score comes out to be accurate.
2. Avoid Bad Associations
Sometimes, keeping financial associations with people having a poor credit history can take a toll on your credit score as well. Here are some people who can affect your credit scores:
Business Partners: If any person who is doing business with you has a poor credit score, it can affect your credit scores as their finances are mutually tied up with yours.
Family And Friends: People who bear a joint account with you can cause damage to your credit scores if their credit risk is below satisfactory levels.
3. Develop Few Good Habits
Developing good financial habits can work like a charm in building your credit score. Here are a few habits worth trying out:
Making Timely Payments: Prioritize on setting aside money exclusively for loan payments. This allows you to make timely payments without making last-minute compromises in your lifestyle.
Spacing Out Loan Applications: Instead of applying for loans whenever there is a need, it would be advantageous to anticipate major loan requirements and space out your applications. This reflects positively on your scores and also helps in planning your finances well.
Not Moving Houses Very Frequently: Changing houses frequently is a red flag for most lenders, as it implies that you are unable to stay committed to one place and the financial responsibilities involved with it.
4. Keep A Low Credit Utilization Rate
The credit utilization rate is the ratio between all your outstanding credit card balances combined, with the total credit limit you have. For example; if your credit limit is 1000 and balance is 300, your utilization rate is 30%.
The credit utilization rate is a significant factor in the credit reporting process. Here is how you can lower it:
Keep All Credit Card Accounts Open: Even after paying your outstanding balances of a particular credit card, you should not close that account. Credit cards with no outstanding balance will help in driving down the utilization rate.
Go For Higher Limit Cards: Getting high limit cards can skew the ratio in your favor and lower your overall utilization rate.
Follow A Bi-Monthly Payment Cycle: Paying credit card dues every 15 days will attract lower interest rates, as well as keep the utilization ratio in check.
5. Using Boost Methods
If you feel like expediting the credit improving process even further, you can boost your scores by bringing in more factors, such as:
Using A Prepaid Credit Card: Prepaid credit cards are pre-loaded cards that you can use for a minimal monthly fee. This way, you are increasing the number of timely payments and boosting your credit score.
Using Experian Boost: The credit reporting bureau Experian offers a new tool called Experian boost, using which you can allow Experian to monitor all your utility payments like phone bills and electricity bills. This way, every time you make a utility payment, it gets factored in your report and boosts your credit score.
Paying off debts should be a priority as it will reflect on your credit score in the future. But if you want a good credit score and improve your chances of getting loans at low rates, you need to align your lifestyle. Following the categorized list above can help you build a quality credit score.