6 Ways to Improve Your Credit Score

Achieving the Golden Credit Score: Here’s How to Get There

Achieving a good credit score can feel like an uphill battle, especially when you’re trying to qualify for a mortgage. A lot of people do not realize that most lenders require a minimum credit score of 620 or higher in order to be approved for a loan. Not only can achieving that feel like a battle, but a lot of people do not know what factors directly impact their credit score, whether for better or worse. Here are six tips on how you can improve your credit score and, ultimately, qualify for the mortgage of your dreams.

Avoid Late Payments: This may sound like an obvious one, but it’s important enough to mention. When you make late payments on bills or loans, your credit score takes a hit. To avoid this, try setting up automatic payments or reminders so that you never miss another payment again. Life gets busy, I get it. That is where automation can take away the guess work. Set it, forget it, and watch your credit score begin to rebound.

Keep Balances Low: Keeping balances low on all of your accounts helps boost your overall credit utilization ratio which is one of the biggest factors in determining what kind of interest rate someone will get if they are approved for a loan or mortgage with bad credit history. The higher this ratio is, the more likely lenders are going to offer better terms and interest rates on loans or mortgages which makes it easier for people with low scores to get approved for them in the first place! One thing you can do is to aim to keep any account with a balance below 20% its limit at all times. Keeping the balance at $0 is preferred, but this is a safe second. This will show lenders that you are able to manage debt responsibly while minimizing the risk they take when granting you a loan.

Pay off Debt: Paying off debt is one of the best ways to increase your credit score quickly. Your credit utilization ratio (how much debt you have versus your total available credit) makes up 30% of your overall FICO® Score calculation, so the more debt you pay off, the better it will be for your credit score. Basically, just pay off your debt. If you are incurring any type of interest on one or more credit cards, you should focus all of your disposable income on paying that off.

Check Your Credit Report Regularly: Checking your credit report regularly helps you stay informed about any changes or mistakes in it. You can get one free copy of your credit report annually from each of the three major reporting bureaus (Experian, Equifax, and TransUnion). This will help you identify any suspicious activity or errors that may be lowering your credit score. Imagine driving down the road without a speedometer. It would be difficult to know exactly how fast you are going. Not checking your credit score is very similar to that. You may have a general idea of how fast you are going, but you won’t know your exact speed to make the proper adjustments.

Limit New Credit Applications: Too many applications for new lines of credit can have a negative impact on your scores because lenders view too many applications as signs of financial distress or instability — even if you get approved for all of them! Applying for new lines of credit should only be done if absolutely necessary and at intervals no shorter than 3–6 months apart from each other. I use the words “absolutely necessary” because more lines of credit leads to a higher likelihood of balances left unpaid.

Don’t Close Old Accounts: Closing old accounts may seem like it would help because it reduces the amount of debt you have, but in reality, closing old accounts can actually hurt your score because it decreases the total amount of available credit that you have access to. This makes lenders wary because they want to see that you have access to enough available lines of credit when they consider whether or not they should approve a loan or mortgage application from someone with bad credit history.

Always use credit wisely by only utilizing what you need and paying off balances as quickly as possible once they are incurred. Otherwise, interest will start to accumulate over time which could lead to additional charges being added onto existing balances and making them much harder (or impossible) to pay off completely. That is having compound interest work against you. It is beneficial to use a credit card for the specific reason of increasing your credit score, but not necessarily making major purchases because that is where many people can get into trouble. We have all been there, so don’t be too hard on yourself.

Improving your credit score won’t always be an easy task; however, with dedication, education, and hard work, it can be done. The purpose of this article is to remind you that you are in control of your money and not the other way around. My hope is that between these 6 tips and time, it will help you achieve that golden 6 digit number. Best of luck, even though I know you don’t need it!

*This is not financial advice. For educational purposes only.