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How to improve your credit score

Nov. 4, 2019, 4:30 a.m.   qualiacredit  

Your credit score is one of the most important aspects of your financial life. Your credit score is a three-digit number that is given to you by a series of credit companies that determines how responsible you are with your finances.

The reason why this number is incredibly important is because this is what many financial institutions use to determine how responsible a candidate you are. Essentially, you are going to need financing for important purchases in your life. This can include loans for continuing education, a car, mortgages and more. If your credit score is good, banks and other lenders will have faith that they will be repaid and in full.

On the other hand, if your credit score is poor, they will concede that you are a high risk candidate, and they may not get their money back on time. Therefore, your application will most likely be declined. That is why it is incredibly important to ensure you practice important financial habits that will increase your credit score. Here are some habits that you can practice today to get that credit score up.

Pay Your Bills on Time

This will arguably be the most important thing you will have to do to increase your credit score. Being on time with your monthly payments will show creditors that you are responsible and budget effectively. Missing payments will not reflect well on a credit report.

Sometimes, irresponsibility can take over and the number of responsibilities that you may have can eventually catch up to you. Therefore, you will have to come up with ways to remind yourself of when certain bills are due so that you can budget effectively ahead of time. Many people like to utilize automatic payments or set reminders on their calendars to financially prepare themselves in advance. Whatever method you decide, or whatever amount of money you can put towards your bill, just make sure that you are not tardy. It is better to make a minimum payment than to make a late payment.

If you are feeling totally out of control, consider credit counselling. They can often help you to make arrangements with your creditors to reduce the monthly amount due so you can slowly get on top of things.

Don't Apply To New Credit Frequently

Another factor that goes into the creation of your credit score is the number of credit lines that you are applying for. There are certain items that you may be interested in purchasing that you will not have the money for on hand. This means that you may want to seek financing, or a line of credit, to pay off the item in question.

If you seek too many lines of credit, it can reflect as hard inquiries on your credit report. This effect will eventually fade over time, but these inquiries can remain on your credit report for up to two years. Consistently requesting for money makes you a high risk borrower.

Keep Balances Low on Credit Cards

Your credit utilization ratio is also important when determining your credit score. This is calculated by adding all of your credit card balances at a given time and then dividing the amount by your total limit. If this limit is high, it may be a sign that you are becoming over-reliant on credit and that your income isn't that high.

In order to positively influence your credit utilization ratio, you should start by paying off your debt and keeping all of these balances low. Keeping these balances low entails that you make sound financial decisions. This means not making impulsive purchases, saving, budgeting and only using the credit card when necessary.

Many people are under the false impression that credit cards are simply free money that can be used at any time. However, that money eventually has to get paid back. A general rule of thumb is not to use more than a third of what your credit limit allows. If you were not able to pay for the item out of pocket, it's a good idea to not use a credit card on it.

You can also lower your credit utilization ratio by becoming an authorized user on another person's account. You should bear in mind that their activity on the card will fall in your hands, so you should ensure that they are someone that you can trust and know is responsible with finances.

Dispute Inaccuracies

Believe it or not, your credit report may not always be accurate. You should always check your credit reports from all credit bureaus for anything that is false. Incorrect information can drag your score down, and you need to verify that whatever is listed on your report is accurate. If there are outstanding errors, get those corrected. The last thing that you want is for your score to be lower because of an error that was not your fault.

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