Your credit score plays a significant role in your personal finance, allowing you to access different loans and credit cards. Unfortunately, many people struggle to keep their credit scores high, and it leads to higher interest rates or even being denied credit.
If you are facing the same problem – you are not alone – thousands of people struggle with their credit scores. Fortunately, there are some simple and surprisingly effective ways to boost your credit score.
In this article, we will share the top 5 surprising ways to boost your credit score and achieve better financial health.
What is a Credit Score?
Before we jump into the solution, let's first revise the basics – a credit score is a numerical representation of your financial record, which impacts your ability to access different loans and credit cards.
Most lenders and credit card issuers use your credit score to decide if they will approve or deny your application. The most common type of credit score in the US is the FICO (Fair Isaac Corporation) Score, which ranges from 300-850.
Simply put, the higher your credit score, the more likely lenders will approve your applications.
How do Credit Scores Work?
Lenders mainly use 5 types of credit scores to evaluate your creditworthiness.
1. Excellent Credit Score: 750-850
2. Very Good Credit Score: 700-749
3. Good Credit Score: 650-699
4. Fair Credit Score: 600-649
5. Poor Credit Score: 300-599
These scores are based on your
- Financial history
- Payment history
- Credit utilization ratio
- Length of credit history
- Types of credit used
It would be best to remember that credit scores are not static – they can change over time, depending on how well you manage your finances.
Top 5 Ways to Boost Your Credit Score
Now that we know one or two things about credit scores let's find out how you can boost your score fast.
1. Keep Your Credit Utilization Ratio Under 30%
Credit utilization is the ratio of your current outstanding credit to your total available credit. Keeping this ratio under 30% can help you significantly improve your credit score by showing lenders that you are not over-utilizing the existing credit.
This means anytime you go shopping or make a purchase using your credit card, try to stay close to the 30% mark.
If your credit utilization ratio is higher than 30%, your lender may think you are not managing your finances properly, which will harm your credit score.
For example, if your credit limit is $20,000 and you have an outstanding balance of $6,000, your credit utilization ratio will be 30%. This means if you spend less than $6,000 on your credit cards, you can maintain a healthy ratio and improve your score over time.
2. Review Your Credit Reports Carefully
It's not a secret that sometimes mistakes can occur on your credit report, and if you don't review them properly, it may hurt your score.
Your credit reports include late payments or overdrafts that could be reported incorrectly. So, make sure to check out your credit report at least once every quarter to see if there is anything that needs to be changed or updated.
This will help you keep your credit score high and prevent identity theft and other serious issues. For free, you can easily download your credit reports from websites like Experian, TransUnion, and Equifax.
3. Pay Your Bills on Time
The most effective and easiest way to boost your credit score is to ensure you pay your bills on time. Your credit score heavily depends on your payment history; when you miss a payment, it can drastically impact your score.
It could be anything from your rent, electricity, phone, or credit card payments. One late payment can stay on your report for as long as 7 years, so make sure to pay all your bills promptly.
Most lenders take late payments very seriously, and it is one of the most critical factors when evaluating you for a loan or credit card.
The best thing you can do is set up a reminder or automatic payment system to ensure you don't miss any payments in the future.
4. Don't Apply for too Many Credit Cards
It's not a secret that applying for multiple lines of credit all at once can harm your score. Every time you apply for a new card, it will trigger a hard inquiry, which will stay on your credit report for up to 2 years.
This will lower your score and make it easier for you to get approved for loans or more cards in the future. Also, the more credit cards you have, the more likely you are to overspend, which can lead to more debt and lower your score.
Also, if you have multiple credit cards, your lenders might think that you need too much credit to manage your finances. It is a huge red flag for lenders and will show them that you are not correctly handling your finances.
5. Don't Close or Cancel Your Old Accounts
Your credit score is largely determined by the age of your accounts or how long you have had active lines of credit. In simple words, lenders will look at you more favorably as a borrower if your accounts have been open for a longer time.
Do not close the old credit accounts you're not using – they will remain on your credit report. If you close them, it would lower your available credit and increase your credit utilization ratio.
That could decrease your score, leading to higher interest rates and other unattractive loan terms.
Final Thoughts
So there you have it! These are 5 simple ways that can help you keep your credit score high. With some dedication and discipline, you can easily maintain a healthy credit score. A higher credit score will help you get favorable loan terms and help you achieve your financial goals. So start implementing these tips today and get on the right track to financial success! Good luck!
I’m Steve. I’m an English Teacher, traveler, and an avid outdoorsman. If you’d like to comment, ask a question, or simply say hi, leave me a message here, on Twitter (@thefrugalexpat1). Many of my posts have been written to help those in their journey to financial independence. I am on my journey, and as I learn more I hope to share more. And as always, thanks for reading The Frugal Expat.
