Before we dive in, let’s discuss why a good credit score matters. To put it simply, lenders use your credit score to determine your creditworthiness. In the mortgage world, your credit score will play a huge part in whether you’re approved for a home loan and the rates you pay.
If you have an excellent credit score, you are considered a low-risk borrower. Low-risk borrowers are offered better rates, fees, and terms which can save you hundreds of thousands of dollars over the course of your lifetime.
While there is no lightning-fast way to repair your credit score, there are easy ways to boost your credit score over time. Improve your financial position and better your credit score with these five simple tips:
1. Check your credit report
When applying for a loan, whether it be for a mortgage, automobile, or anything that involves financing, your credit score will play an important role in the process. Before you pull the trigger on applying for a loan, review your credit report first.
Your credit score is heavily based on the information in your credit report. Checking your credit report will allow you to dispute any errors that may be hurting your score. By law, you’re entitled to one free copy of your credit report every 12 months from each of the three major bureaus.
2. Pay your bills on time
We’re all human and sometimes we make mistakes. However, if you’re looking to improve your credit score, late payments must be a thing of the past. Payment history is the most influential factor in both FICO and VantageScore credit scoring systems.
No strategy to improve your credit score will be effective if you’re not paying your bills on time. Keep track of your monthly bills, set due date alerts, and automate your bill payments to ensure you never miss a payment again.
3. Reduce your debt
Credit utilization is the ratio, usually expressed as a percentage, of your total credit to your total debt. In other words, it’s how much you currently owe divided by your credit limit.
Credit utilization is the second most important factor affecting your credit score. The easiest way to keep your credit utilization in check is to pay your credit card balances in full each month. If you’re unable to do that, you should aim to keep your total outstanding balance at 30% or less of your total credit limit.
A great way to start would be to look at your credit accounts and pay off the accounts with the highest interest rates first while maintaining the minimum payments for the others. From there, you can work on whittling your credit utilization down to 10% or less.
4. Make frequent payments
Making frequent payments throughout the month, as opposed to paying them all at once, goes hand-in-hand with reducing your debt and maintaining a low credit utilization ratio. High balances on your credit accounts can lead to a high credit utilization rate and hurt your credit score.
5. Limit your requests for new credit
There are two types of inquiries that factor into your credit history, often referred to as hard and soft inquiries. Hard inquiries can negatively affect your credit score and include applications for a new credit card, a mortgage, or an auto loan, among other forms of new credit. Soft inquiries might include checking your own credit or credit checks by financial institutions. Soft inquiries do not affect your credit score.
Too many hard inquiries in a short period of time can appear risky to lenders and therefore damage your credit score. If you’re trying to improve your credit score, you should avoid applying for new credit.
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Originally published May 18, 2020, updated August 24, 2022.
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