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How To Boost Your Credit Score

9th June 2020 Print
credit report

Credit Scores have become more important today for consumers who need credit to buy cars, homes, or even to rent great apartments. Have a sub-par score can certainly cause grief as well. Individuals with poor credit will have higher interest rates which will equal to higher payments. 

In many cases, potential employers are even checking applicant's credit scores before they make a job offer. They don't want to bring on an employee that has a high debt load or might have other issues that could cause issues in the workplace. 

Having a great credit score can aid you in so many ways. It can help you qualify for a car lease, lower your interest rate, and at the end of the day, help you keep more money in your pocket. 

So if you have a low credit score and want to get it up as high as possible read on how you can accomplish this today!

Credit Scores: Why They Matter

According to Experian, a credit score basically will tell the lender how likely you are to repay a loan. The score comes in a 3 digit number. The higher the score the better. There are 3 major credit bureaus and they all have their proprietary algorithm that will dictate what score you will have. Here are the ranges for each bureau. 

- Experian: 330-830

- Equifax: 280-850

- Transunion: 300-850

These companies keep their algorithm under lock and key. So you won't be able to see how they arrive at the final number. 

What is a Good Score 

But really, nobody should aim to have a perfect score. In fact, all you need to do is have a good score in the eyes of a lender to get favorable loan terms. That should be everyone's goal. So how do we find out what that good score is?

Experian says that most scores are going to fall in the range of 600-750, with anything above 700 being good. Once you get up into this level you have attained the best possible lending rates.  

This means that you don't need the maximum score to get the best terms. You just need a score that is good enough. So don't aim for perfection!

Which brings us to the best methods you can use right now to increase your credit score. 

Pay off Credit Card Debt

When you have too much credit card debt this is a red flag to lenders that you may be someone who will carry risk. All credit cards will have a maximum available credit limit. The more you carry, the higher debt you will have. 

- Start by paying more than the minimum required payment. Not only 

- Will you be saving money on interest, you will increase your credit limits 

- Which is a good sign in the eyes of a lender

Increase Your Credit Utilization Rate 

Now if you managed to pay off your entire credit card, don't cancel the card. This can hurt your score. 

Here is why.

When you cancel a credit card you decreased the available amount you were able to borrow.

For example, let's say you have 

- AMEX card with a credit limit of 5k

- Visa card with a credit limit of 5k

This means that when you combine the 2, you have a credit limit of 10k. 

Credit Utilization Rate is one of the biggest factors when it comes to your credit score. Again according to Experian, this is defined as taking the balance on your credit card / your total available credit. 

- So if you have a $2000 balance on a credit card with a total available value of $5000, your utilization rate is 40%. (2000/5000)

- But if you have 2 credit cards that when combined give you 10k in available credit, but you only have a balance on them of $2000, your ratio is 20%.

- Your credit score will be higher in this latter method. 

Another method to increase your score would be to apply for a new credit card. This would instantly increase the total available credit. Just be sure you don't charge too much on this brand new card

Make On-time Payments 

Making on-time payments will be a big part of your credit score. Lenders don't want to loan people money at low-interest rates if they don't receive their money back on-time. 

When you make late payments and these are reported to the credit bureaus, this can certainly hurt your score. Low scores can cause unforeseen circumstances like having your rental application denied.

- Pay your bills on-time

- As you make more and more timely payments

- Your credit score should go up

Take-Aways

- Don't max out your credit cards 

- The lower credit utilization rate you have, the higher your score will be

- Make those payments on-time

- Consider hiring a credit repair specialist that has more resources than you. They 

- Often have a team of lawyers than can help you increase your score faster!

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credit report