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How to Boost Your Credit Score

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A high credit score makes life easy and cheaper. Everyone needs credit at some time or another, especially if you need to borrow money. Did you know that employers are now starting to check the applicant’s credit scores too. Employers probably don’t want to hire someone with low scores. They can be evidence of someone with financial issues or someone that isn’t responsible. 

  • High scores are required for people who want to lease cars and they are even being used to approve and deny apartment renters. 
  • Low scores lead to higher interest rates on credit cards, mortgages, and will leave you with less money in your pocket. With so many disadvantages, boosting your score is paramount. 

Here are probably the best 2 ways to increase your low credit score today!

Credit Score: What is It 

There are 3 major credit bureaus, and each issue a three-digit score. The companies include

  • Experian
  • TransUnion
  • Equifax

Each company will have both a minimum and a maximum score that an individual will be assigned. 

Experian: 330-830

Equifax & TransUnion: 300-850

The scores represent how likely you are to repay your debt. The higher the score, the more likely you are to repay a debt or a loan. Now each bureau uses a different algorithm to come up with your score. 

Don’t spend any time trying to decipher their methods. What you can do is focus on paying your bills on time and keep your credit card balances low. 

Their models to determine your score will be entirely calculated by how you handle your financial matters. 

FICO Scores 

Many of you have heard the term “FICO Score” used in the wild. This is a separate score that is calculated by the Fair, Isaac and Company, which is a publicly-traded company. 

Please remember that nobody should aim for a perfect score. That is very difficult to achieve. And it won’t matter in the long run. When companies issue credit, you only need to have “good credit” in their eyes for the best rates. 

According to myfico.com, your score will be calculated using various pieces of information. The biggest parts of your score will be derived from your payment history (35%) and the amounts owed (30%).  

And these will be the items we want to focus on. 

Payment History

Lenders want to know that you will pay your bills on-time. And there is no better way than to view your payment history. 

You can see this is the most important makeup of your credit score. And you can bet that the other 3 major credit bureaus factor this in as well. 

If you want to increase your credit score

  • Make sure you are making your credit card, mortgage, and car payments on-time each month
  • This will go a long way into increasing the digits in your score.

Many components are part of your payment history

  • Money owed on past due accounts
  • The number of past due items that appear on your credit report
  • How much time has passed by on your delinquent accounts? 

Pro Tip: As negative items on your account begin to age, their effects will lessen over time

Amounts Owed on Accounts 

The second largest part that will affect your score is how much you owe. Together the amounts owed and your payment history will affect 65% of your FICO score. 

Just because you have credit cards and you carry balances doesn’t mean your score is going to tank. 

  • But it’s the amount of credit that you’re using that will affect your score. 
  • Lenders know the more you owe, the harder it may be for you to pay all your bills on-time
  • Your overall credit utilization will affect your score. 

What is Credit Utilization

Credit Utilization is simple math that takes into account your revolving accounts. This usually means your credit card accounts. 

For example, suppose you have the following accounts with balances below. 

  • 1 AMEX card with a credit limit of 5K and a balance of 4k
  • 1 VISA card with a credit limit of 5k and a balance of 4k
  • This means your credit utilization rate is 8k(your total credit card balance) / 10k( your total credit limit = 80%.

This certainly will hurt your score. So you can start by paying off larger portions of your credit card debt. But don’t cancel that credit card.

  • This will reduce your total credit card utilization rate
  • Done quickly, this can certainly impact your score positively. 

Credit Score Take-aways

  • Be sure to make all of your payments on-time
  • Keep your the balances on your credit cards low
  • Combining these can surely boost your credit scores over time
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