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Seven Easy Ways to Improve Your Credit Score

A good credit score can improve your financial well-being, in both good times and bad. However, reliable credit is especially important in times of economic instability, such as now. How can you improve your credit score? Money.

Photo: IStock

Inflation continues to be a concern, and recession fears remain. To try to drive prices down, the Federal Reserve has raised short-term interest rates five times this year. But Fed policy has raised the cost of all types of debt, from personal loans and credit cards to student loans and mortgages.

Having a high credit score can help you qualify for a lower interest rate and offset some of that increase.

A borrower with a credit score of 620 can, on average, qualify for a rate of around 8,32% on a 30-year fixed-rate mortgage. The monthly payment for a $400 house at this rate would be $000. A borrower with a stronger rating of 3, on the other hand, would qualify for an average rate of 025% and would have to pay $740 less per month.

If your credit score needs some improvement, then the sooner you take steps to improve it, the better. It takes time and patience to raise your credit score. The following steps may point you in the right direction.

How to raise your credit score

Your credit score is intended to tell lenders whether you are a high-risk or low-risk borrower. Both FICO and VantageScore (a score developed by three major credit bureaus - Experian, TransUnion and Equifax) will range from 300 to 850. A score of 700 is considered "good". The better your credit score, the better the interest rates and conditions that lenders will offer you.

1. Pay your bills on time

According to Experian, payment history is the most influential factor for both your FICO and VantageScore. From a lender's point of view, a history of timely payments is a good indicator that you will be responsible for future debts as well.

On the subject: Personal experience: how I collapsed my credit rating and restored it in a year

“Late payments, non-payments, foreclosures, third-party foreclosures should be avoided,” recommends John Ulzheimer, a loan officer formerly of FICO and Equifax. “And going bankrupt is a terrible idea. Anything that indicates default will damage your credit score.”

2. Keep credit usage low

Compare your card balances against your credit limit and make sure you don't use too much of your available credit.

Ulzheimer recommends keeping the utilization rate at 10%.

“The higher this ratio, the fewer points you earn in this category, and your credit score will definitely suffer,” the company says. "In fact, the people with the highest average FICO scores use 7%."

The date your credit card provider reports to the credit bureaus can also affect your utilization rate.

Ulzheimer notes that FICO scoring systems do not distinguish between those who pay in full every month and those who have a balance. The utilization rate at the time of your issuer's report is what is used for your valuation. However, VantageScore takes into account whether you pay in full or carry over the balance monthly.

If you're struggling with large balances and rising interest charges on your cards, consider consolidating.

3. Keep old accounts open

Once you get rid of student debt or pay off your car loan, you'll want to erase any trace of it from your report as soon as possible.

But as long as your payments are on time and complete, these debt records can really help your credit history. The same applies to your credit card bills.

“A bill that is fully paid is good; however, closing an account is not something consumers should do automatically in the hope that it will positively impact their credit score,” explains Nancy Bistritz-Balkan, vice president of communications and consumer education at Equifax. “Having an account with a long history and a solid track record of paying bills on time is the indicator of accountability that lenders are looking for.”

Closing a credit card account can actually lower your credit score as you will now have a lower maximum credit limit. If you still have balances on other cards or loans, your utilization rate will increase. It is better to leave the card with a zero balance.

Any debts that could negatively impact your account are automatically removed over time. Bankruptcy can stay on your credit report for up to 10 years, Ulzheimer says, while delinquent payments and delinquencies, such as debt collection, property foreclosures, stay on your credit report for seven years.

4. Take Advantage of Rank Boost Programs

The number of accounts and the average age of your accounts are important factors in your credit score, which can put those with limited credit history at a disadvantage.

Experian Boost and UltraFICO are programs that allow consumers to boost their credit history using other financial information.

By choosing Experian Boost, you can connect your online banking details and allow the credit bureau to report your telecommunications and utility payments history. UltraFICO allows you to give permission for your banking details, such as checking and savings accounts, to be taken into account along with your report when calculating your score.

5. Only apply for the loan you need

Every time you apply for a new loan, your report is subject to serious scrutiny. This type of request temporarily lowers your score. Applying just to find out if you'll get approved or because you've received a pre-approval loan is not a good idea.

A series of inquiries may signal to creditors that you are taking on too much debt. According to a spokesman for TransUnion, the impact of tough checks lasts up to 12 months.

If you need to apply for a new loan, do your due diligence before applying to make sure you are a good candidate.

You should also refrain from applying for multiple credit cards within a short period of time or before taking on a large loan such as a mortgage.

When you're taking out a mortgage, car loan, or personal loan, you can minimize difficult requests by comparing rates within a short period of time. Applications for the same type of loan within a certain time will only be displayed as one request. According to FICO, this interval can vary from 14 to 45 days.

6. Be patient

You cannot drastically improve your credit score overnight. The best way to achieve great results is to develop good long-term credit habits.

According to Ulzheimer, there are two important factors that affect your ranking - the average age of the information and the oldest account in your report.

“You really need to have a couple of decades of credit history before you top out in the rating categories,” Ulzheimer advises. “It takes a very, very long time to improve a bad grade and very little time to ruin a good grade.”

Develop good habits like paying your debt on time, keeping your utilization rate low, and only applying for credit when you need it, and over time, you'll see how this reflects on your bill.

7. Keep track of your credit

When you review your own credit, you are making a "soft" request that does not affect your credit score in the same way that hard requests do.

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Tracking fluctuations in your score every few months will help you understand how well you are managing your credit and if you need to make any adjustments. However, you should not base any financial decision solely on your credit score.

How to check your credit report

You have the right to receive a free copy of the report on the website annualcreditreport.com.

You will be able to receive one free report from each of the three major credit reference agencies (Experian, TransUnion and Equifax) per year. However, due to COVID-19, you can receive a free weekly report from any of the bureaus until December 31, 2023.

Check your credit report for errors or they will lower your score. If you find errors, remove items from your credit report by challenging the information directly with the credit bureau. They are required to investigate any dispute and resolve it within a reasonable time. However, keep in mind that only incorrect information can be removed from your report.

Each credit report will have the information you need to improve your score, Richardson says.

You can also find a numeric or text code on your report, but no further information about what it represents. These are factor codes that represent items that could lower your score. VantageScore has a free website ReasonCode.orgwhere you can enter a code from any credit report and get an explanation of what it means and tips on how to solve the problem.

If you are not sure if there are errors in your report, or if you are having trouble solving problems yourself, then seek the help of an expert.

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