Boosting Your Credit Score: What You Need to Know
Looking to boost your credit score? A good credit score will give you lots of perks. Saving money will be the most important one. Lenders offer people lower interest rates to those who have high scores. This equates to lower mortgage and car payments, along with higher credit limits on your credit cards.
Low scores have the exact opposite effect. You end up paying more for the same goods and services. Today many employers also check scores for potential employees. Some corporations prefer not to take on an individual who might have issues paying off personal debts. Also some luxury apartment complexes are even declining renters for bad scores.
Want to increase your score as fast as possible? Ready on for some tips that in the long run will do just that.
Credit Scores Defined
According to wallethub.com your credit score is a letter score given to you based upon how you have handled your financial obligations in the past. It implies to lenders how big of a risk you are. Lenders want to know if you will pay back your loan, and pay it back on-time.
3 different companies will issue credit scores. You probably have heard of all of them. They include
- Equifax
- TransUnion
- Experian
Another company issues a FICO score, you can read more about them over here.
Each will have an algorithm that will determine your score. But ultimately, it's you, and how you manage your finances that will ultimately determine your final score. The good news is that if you don't make the best decisions, you can always correct them in the future.
Improving a poor credit score or fixing credit reporting errors can be a time-consuming process. Credit repair companies can take that load off your mind, but you need to know your legal rights and what services to look for. This comprehensive guide on credit repair will help.
Score Ranges for Each Bureau
Everyone will have a score that falls within a certain range. Although each company has tinkered with its scoring ranges over the years, they all currently cover the same scoring range.
All scores will fall between the range of 300-850
Remember that you don't need an 850 to qualify for the best interest rate. Once you achieve a good score, there isn't any incentive to obtain a higher one. Solid credit scores always get preferential treatment in the eyes of the lenders.
You will need a good score to qualify for a car lease and obtain the lowest mortgage rates in the marketplace. Bad scores can create headaches for many situations.
According to Equifax:
670-739 are good scores
740-799 are very good
Anything greater than 800 is excellent
If you have bad credit, then you will want to attack the biggest factors that affect scoring. The two biggest factors include your payment history and the amounts you owe (your debts), generally on revolving credit. You can read this informative guide on strategies for improving your credit score.
Pay Your Bills On-Time
Remember, lenders want to know that you pay your bills on-time, every time. People who do this generally have some of the better scores.
- This includes all of your revolving accounts like credit cards
- But also will include cell phone accounts.
- And utility bills
Stay/Get Current with Delinquent Accounts
If you have made payment plans with certain companies, be sure and pay them back accordingly. Over time this will help your credit score.
Doing Nothing May be a Good Option Too
The good news is that eventually accounts that you have left delinquent will fall off your credit report and won't affect it negatively. While it could take about 7 years, it will go away. Some derogatory items will take 10 years to disappear.
- Pro-Tip
If you have a delinquent account that is 5 or 6 years old, you might be better off to simply do nothing. You will be very close to these negative items not affecting your score for much longer.
Also as negative items affecting your score age, they won't affect your score as dramatically as they once did.
Ask for Amounts to Be Waived
Working on paying off old accounts, ask creditors what items they are willing to waive. Most creditors don't get anything back from people who owe. Any way that you can pay back your debt faster will be to your benefit.
Low Credit Utilization Rates
The other elephant in the room will be the amount of debt you are carrying in relation to your total debt load capacity.
Remember that lenders who loan you money want to be sure you can pay it back. If you're carrying a large debt load and you owe a lot of money to others, then it may mean you are risky in the eyes of a lender.
You may owe different amounts on different types of accounts. Using a lot of your available credit will hurt your score.
Consider the following scenario. You currently carry 2 different credit cards
- 1 Visa card with a credit limit of 7k and a balance of 3k
- 1 Master card with a 6k limit and a balance of 5k
(7k+6k)=13k total credit limit
(3K+5K)=8k total balances on both cards
8k/13k=61% total credit utilization rate
- A large number of open accounts can have a detrimental effect on your score
- However, the average American has a little over 3 open credit cards per this source.
Loan Installments
Don't forget about your other types of loans like home mortgages and car loans. As you make more payments the overall balances will decline. As the balance declines, this indicates that you are paying down debts owed. This will have a positive effect on your score.
Final Thoughts
- People with good scores enjoy lower interest rates on home loans and can qualify for things like car leases.
- Negative and delinquent accounts will certainly lower your credit score.
- Lenders want to know that you will pay back debts owed. A high score is reflective of what lenders think about you.