Credit scores are an indicator of the financial health of creditors, but this score can also impact the careers of military and federal employees due to security clearance and background check requirements.
A borrower’s creditworthiness also affects a budget’s bottom line. Credit scores can reduce the amount of interest paid on credit accounts, make it easier to rent a house or apartment, eliminate the need for security deposits when setting up utilities, and keep rates down. low insurance.
If your credit rating isn’t what you want it to be, there are simple steps that can improve it. Some of these steps can give you a faster score increase, but the more complex parts take time and consistency. The three areas you need to focus on are reducing your credit balances, paying regularly on time, and building credit carefully.
“The best way to improve your credit score is to improve the areas that weigh the most in determining your score – payment history and credit usage,” said Lacey Langford, AFC®, The Military Money Expert®.
1. Reduce credit balances
Paying off your outstanding debt is the fastest way to improve your credit score, according to Langford.
“The amount of money you owe, or your credit utilization rate, is 30% of your credit score. Having a lot of debt has a negative impact on your credit.”
Experts recommend keeping your credit utilization rate below 30%. For example, if you have a total credit limit of $5,000 on three credit cards, you will want to have a total balance of no more than $1,500 on those credit cards. However, consumers with the highest credit ratings typically have single-digit credit utilization rates or pay off their credit cards in full each month.
2. Pay on time
Your payment history represents 35% of your total credit score. Although it takes longer to build up an on-time payment history, it is an important part of the equation.
“Late payments can hurt your credit. Making your payments in full and on time will be the best way to improve your score,” Langford said.
If you tend not to pay your bills due to activity or disorganization, setting up automatic payment for the minimum payment can ensure that at least the required amount is paid on time each month. . But be careful not to overload your checking account by doing so. You can set up automatic payment on or near payday to reduce this risk.
A quick fix is to make sure every credit account is up to date now. While you can’t erase late payments in the past, being up to date right now is a big step forward.
3. Build your credit, but carefully
The last two recommendations may seem contradictory, but if done correctly, they will improve credit score: establish credit and limit new accounts.
A strong credit history requires a payment history, which cannot be built without having some credit. Plus, a combination of credit types can help boost your score. This may mean that you want to open a new account. But you want to be thoughtful and strategic when opening new accounts, only opening what you specifically need for a specific purpose and not opening new accounts too frequently.
You can build your credit history using services like Experian Boost, which lets you report payments that aren’t typically reported like cell phone bills or utilities. Another option is SelfLender, which lets you take out a small loan and then automatically repay the loan on time each month. While these tools can help boost your scores, make sure you understand what you’re paying for and getting for these services.
Some of these steps can give you a quick boost in your credit score, and some will take some time. But either way, you have the power to boost your credit score, giving you more options throughout your financial life.
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