A Credit Score is someone’s portfolio of credit history. It determines how good has been your financial health in the past. For most of us, our Credit Score determines almost everything about us. The Credit Score determines whether we get a new car or not, a new house or not, what rate of interest we may have to pay, whether we will get loans when we may hit rough patches in the future.
As a result of this, having a good Credit Score can change your life, and conversely, horrible history of financial health can ruin it. One of the most common misconceptions about the Credit Score is that applying for Credit Cards ruins your Credit Score. That is not the reality. Credit Bureaus or Agencies provide credit reports and Credit Scores compiled primarily for government and private lenders about individual borrowers such as Banks, Financial Institutions, and other lenders to decide whether to give further financial assistance to the concerned individual or not.
This Credit Score is just a number that always ranges between 300 to 900. If your Credit Score is good, it always remains between 750 to 900. If it is below 750, it would be considered average or poor.
Easy and Simple Ways to Fix Credit Score in 2022
Your credit score is a big part of your financial identity. It can be the most crucial factor in determining whether you can get a loan and how much it will cost you. Your credit score is a number known as a FICO score that helps evaluate how much it will be risky to lend you the money. It simply shows how responsible you are with the finances.
It can allow you access lower rates when it is good, enabling you to borrow for both short-term emergencies and oversized longer-term items. That is why falling behind on your mortgage payments, car loans, or credit card bills is not a wise move. It may defame your future ability to borrow money. So, you may still be able to get things like Home Mortgage or Car Loan, it could cost you even more in the long run, and that is because you are likely to be charged a higher rate of interest.
Bad credit can affect areas of your life that you wouldn’t expect. Take employers and landlords, for example; they may look at your credit score to see if you be a responsible employee or tenant. Some car insurance companies may also see it related to your relationship credit score and the likelihood of being in an accident. This means you are charged a lot more, even for insurance in certain states. So how do you build your credit score or protect what you have already made?
How is Credit Score Calculated?
There are five things you should know about how a score is calculated using the information on your credit report. The Credit Score is made up of several factors. The Credit Score helps lenders evaluate how well you pay your debt. This, in turn, determines what kind of loans you get in the future— the better the Credit Score, the lowest interest rates on future loans.
1. Payment History: this is one of the essential pieces of your credit profile and accounts for roughly 35% of your score. Make sense that if you have been responsible in the past, you can probably be trusted in the future to avoid late payments at all costs.
2. Amount Owed: This is the second most crucial factor at around 30% of your score. This part is vital because notching a good Credit Score doesn’t mean that you don’t borrow. Not using your credit is almost worse than using tons of it.
You always want to show that you can use and handle a reasonable amount of debt without off.
3. Length of Credit History: One of the more obvious factors in a Credit Score is the length of your credit history, which accounts for 15% of your number. It is almost like Amazon movies where a shopper owner wants his regulars to run up a tab because he is suitable for it, and the same goes with credit. The longer you have been borrowing, the better.
4. Types of Credit: This type of credit reviews how many sources of borrowing you use. Like, Car Loans, Mortgages, Credit Card and these account for 10% of your score.
5. New Credit: This accounts for 10% of the score, and it takes into account how often you take credit that you don’t need, like applying for a credit card for your new favorite store.
So while you cant have a Credit Score in a thousand. You can make sure that you are taking the steps towards making a great Credit Score.
5 Ways to Raise Credit Score
1. Authorized User
In this method of raising your credit score, somebody with an extensive credit history adds you as an authorized user to the credit card. When that happens, their credit history will show up in your account.
This term is also known as Credit Piggy Banking because essentially, you can get all the benefits on someone else to score without you needing to do all the work. Typically, this is something that I would recommend parents do with their children if they want to get a head start on their credit, or if you have someone you explicitly trust, you can do this to help them out. You don’t even need to give them a physical card to spend the money. As long as you are placed as an authorized user, it can help you out.
Also, read Best Free Online Banks 2022 | Top 10 List
2. Pay your Credit Card Bills on Time and in Full
Many of us have credit cards and have the habit of paying the minimum balance every month; this is a big mistake. If your credit card bill is, let us say, $10000, pay off the entire $10000 amount of that month in full when the bill comes to you.
Once you pay the bill in full, this is a strong indicator that you are trustworthy to the credit agencies.
If you keep continuing to do this, you will see your credit score improving steadily over some time. By the way, if you are someone who doesn’t have a credit card like a student or someone, then get a Secured Credit Card or Prepaid Credit Card and pay your bills on time. It is probably the easiest way to improve your credit score in the shortest time possible.
3. Spend only 30% of your Credit Card Limit
Now, many of us mistake utilizing our credit cards entire every month. E.g., if your credit limit on the card is $10000, you make purchases of almost $10000 and a max of your credit card.
Everything looks normal at that time because you have only spent in your limits. However, what happens is that the credit reporting agencies will report that you have paid all your allowed money.
It works like this, imagine you are in a high school and you were allowed only $500 as your pocket money by your parents.
If you went ahead and spent the total amount of things that you liked, would your parents have a good impression on you? Probably not.
So they might think that this fellow doesn’t know how to control his spending habits, so it better we give him less money next time. So same thing happens with credit agencies, and they will provide you with a negative score, thereby lowering your credit score.
Therefore, spending your maximum, spend only 30% or less of your credit card every month and pay it off full when the bill comes out. You will be surprised to see the increase in your Credit Score.
4. Do not Apply for Multiple Loans or Credit Cards Simultaneously
Many of us have this stupid habit of rolling money, i.e., taking money from one credit card, paying off another one, taking a personal loan from one bank, and paying off another one, this is a wrong move because as I said earlier on when you are applying a bank loan or a credit card, most banks check your credit score without your knowledge with credit body agencies.
When they see too many credit applications or credit checks coming in with one person, they feel suspicious, and for each credit check, you get a negative point. So if there are many credit checks, you can imagine how much damage it will make to your credit score.
So avoid applying for multiple loans or credit cards too close to each other and only apply for financial products that you need.
5. Clean-up Inaccuracies in your Credit History
Now, you already know a financial or credit report in your name with the agencies. There is quite possible that they have some wrong information or inaccurate information about you. It is quite possible, and that might affect you negatively.
So what you need to do is remove such inaccurate remarks from your profile and essentially clean it, and for this, you first need to get your credit history.
This is the report that Credit Bureau agencies have in your name. The good thing is that you can get it free once a year while logging on to the website annualcreditreport.com.
Lastly, I want to say that there is no need to pay anyone for credit repair services and ignore all spam messages and comments praising someone for increasing the credit score. All this is something that you can do yourself for totally free and that in an hour and it is straightforward to do it yourself.
So those were my tips and techniques to boost up your credit score as much as you can in little time is possible. Raising the credit score to about 750 or above, you will get the best services like Mortgage and Auto loans; you can sign up for your Credit Cards or get some free stuff. This opens many opportunities to save your money that would not be possible without a good credit score.