If you’re looking to save money, chances are you’ve given regular household expenses a once-over and tried to find items to cut. But you might save even more long term by working on your credit.
Let’s say your credit score is 620, which typically is considered “bad credit.” That means lenders or card issuers, if they’re willing to extend you credit at all, are likely to charge a high interest rate. You might also pay utility deposits that people with better credit don’t. And in 47 states, credit history can be used in setting car insurance rates, which usually means higher rates for drivers with poor credit.
But if you could reach 720, which is at the bottom of the “excellent” range, lenders would see you in a very different light. Even moving from bad credit to good — but not quite excellent — credit will give you options you don’t have now.
Getting to 100
Is a 100-point improvement realistic? Rod Griffin, director of public education for credit bureau Experian, says yes.
“The lower a person’s score, the more likely they are to achieve a 100-point increase,” he says. “That’s simply because there is much more upside, and small changes can result in greater score increases. It’s harder to improve scores when you already have a strong credit history.”
NerdWallet
Here are some good recommendations from nerdwallet.com, that can actually give you a hundred point credit score growth.
No strategy to bump up your score will work unless you’re also paying on time. Why? Payment history has the single biggest influence on credit scores.
If you’re behind on any accounts, call the creditor. Arrange to pay up and ask if it will rescind the reported delinquencies so they no longer appear on your reports.
Here are three longer-term strategies that can help you boost your credit scores.
1. Building a Strong Credit History
One of the most effective long-term strategies is to build a strong credit history. This involves a few key steps:
On-Time Payments: Consistently making payments on time is crucial. Payment history accounts for a significant portion of your credit score. Late payments, delinquencies, or defaults can severely damage your score. Setting up automatic payments or reminders can ensure you never miss a due date.
Credit Utilization: Keeping your credit utilization ratio low is essential. This ratio measures the amount of credit you’re using against your total credit limit. Ideally, keeping this ratio under 30% is recommended. For instance, if you have a credit limit of $10,000, try not to carry a balance of more than $3,000.
Age of Credit Accounts: The length of your credit history also impacts your score. Older credit accounts are beneficial as they provide a longer track record of your credit management. Avoid closing old credit accounts as they can shorten your average credit history length.
2. Diversifying Your Credit Mix
Having a diverse mix of credit accounts can positively influence your credit score. This doesn’t mean you should open multiple accounts hastily; rather, it should be a gradual process.
Different Types of Credit: Aim to have a mix of revolving credit (like credit cards) and installment loans (like car loans, mortgages, or student loans). This diversity shows lenders that you can manage different types of credit responsibly.
Responsible New Credit: While diversifying, be mindful of not opening too many new accounts in a short period. Each new application can result in a hard inquiry, which can slightly lower your credit score temporarily.
3. Regularly Reviewing and Disputing Errors on Credit Reports
Regularly reviewing your credit reports from the three major credit bureaus (Equifax, Experian, and TransUnion) is an effective long-term strategy. This helps in identifying and rectifying any errors that might be unfairly dragging down your score.
Annual Credit Report Review: You’re entitled to one free report from each bureau every year. Utilize this opportunity to check for inaccuracies or fraudulent activities.
Dispute Inaccuracies: If you find errors, dispute them immediately. This can include incorrect personal information, mistaken or fraudulent accounts, and incorrect account details. Removing these errors can significantly improve your credit score.
Monitoring Credit Score: Various services offer credit monitoring, which can alert you to any changes in your credit report. This proactive approach helps in quickly addressing issues that may arise.
Implementing these strategies requires discipline and patience, as credit scores don’t improve overnight. However, with consistent effort, you will see a gradual and steady improvement in your credit score. This improvement not only reflects better financial health but also opens up new avenues for financial growth and stability.
