Credit Score can seem like a complex idea at first, especially if you haven’t had to think about it before. However, it is not as difficult to understand as you might think. If you are worried about your credit score and trying to figure out ways in which you could improve it, then it actually is quite simple. The first step in understanding credit score is to know what exactly is it. A credit score is a three-digit figure that is often calculated on a scale of 300 to 850. 300 is on the lower end of the scale or what is known as a “bad credit score”. Similarly, a score of 800 or more falls on the higher end of the scale and is known as a “good credit score”.
If you find that your credit score is on the lower end, don’t be completely disheartened as there are ways in which you can improve them with a little effort and determination. If you are worried about your credit score, it is perhaps because you’re planning to make a big investment such as buying a car or a new house, or you are simply trying to improve your score.
Having a good credit score becomes crucial when you want to get a loan for a big investment. This is because having a good credit score ensures that you are able to get a better loan at a lower interest rate. Not only that but with a good credit score, you could also enjoy other benefits. You will be approved for a loan faster with a good score. Lenders and banks associate people with a good credit score to have better debt management and overall less risky. Having a good credit score ensures the lender that you are less likely to default making payments on time.
On the other hand, having a bad credit score can affect the possibility of you getting a better loan at a lower interest rate. A bad or low credit score could possibly make it harder for you to be approved for a loan. If you are approved for one, then you will probably end up paying a higher interest rate compared to someone with good credit score. Which is why maintaining a good credit score is ideal.
In order to raise my 650 credit score I need to be consistent in making the correct moves:
Raising Credit Score in 6 months can be difficult, but nothing that is impossible. You need to be prepared to put in time and effort. With thorough research, handwork, and determination, you can definitely improve your credit score in 6 months.
Find out Your Credit Score: One of the first steps in improving your credit score should be by having a clear understanding of where you stand, and what would you want to achieve. Have a clear picture of your credit score can be rudimentary in understanding the effort and time you will have to put in if you are looking to improve your score. You can contact credit bureaus to find out your score. Alternatively, you could also try free online services that can provide you with your credit score.
Check Your Credit Report: If you are beginning to understand credit score and don’t have a lot of knowledge about it, then one of the things that you might wrongly assume is that your credit report contains your credit score. This is not the case. The credit report does not contain your credit score, but it does contain all the necessary and important information about your credit and debts. This information is as necessary as finding out your credit score.
Often times, the reason for a low or bad credit score could easily be found in the credit report. A credit report provides you with all the detailed information you need. Going through your credit report and checking if all the information is correct or not will help you analyze if the issue lies in an incorrect record. If you find any incorrect information or any discrepancies in your credit report, it is highly recommended that you report it immediately. Go through all the information and cross-check to ensure everything is correct and fine.
Make Payments On Time: This is as important as it is obvious that you must make all your payments on time consistently. Missing payment due dates will definitely affect your credit score. If you miss the payment due dates frequently and for several bills, then that will result in a low or bad score. Therefore, it is extremely important that you make all your payments on time. Not only that, but you should also make effort to pay off as much debt as possible and as soon as you can. Having debt for an extended period of time will also have a negative effect on your score. It is fine to pay off small debts or pay off in installments, but make sure to consistently pay off debts. You don’t have to pay off all your debt at once, but paying off slowly but consistently is the key to maintain and improve your score, and prevent it from going down.
Make Your Debts Current: One of the ways to ensure you are paying on time and don’t have a lot of debt reflect in your credit report is by making some of your debt payments current. By making some of the debt’s current and actively paying them off will reflect positively in your report. Again, remember that you don’t have to pay all of it at once, but making old debts that have been piling on current will reflect that you are managing your debts effectively.
Get a Secured Credit Card: This is another important step that can help you improve your credit score. A Secured Credit Card requires a deposit that you have to pay when getting one. The deposit amount, is usually what becomes your credit-limit for your secured credit card. Having a secured credit card can be quite beneficial in improving or maintaining a good credit score, as it helps to maintain a good credit history. The deposit paid before getting a secured credit card is required in case the person fails to pay the credit amount. The deposit is held by the issuer if you don’t make your payment on time or fail to make the payment at all. A secured credit card functions in the same way as a regular or unsecured card. The only difference is the deposit you have to pay for a secured one.
Make sure to pay off the credit card on time to prevent defaulting, as that will reflect in your credit report and affect your credit history.
Manage Your Credit Utilization Ratio: When you issue a credit card, you get a credit limit, which is the amount you can use. To improve your credit score and to prevent your scores going down, always maintain a good credit utilization ratio. You can do this by not using or spending the entire credit limit. Always use a small percentage of your credit limit and pay it off in time. Don’t use your credit card to pay for everything, only use it when it is absolutely necessary. Doing so will reflect positively in your report and help you maintain a positive credit history.
It is important to remember that you use your credit card, as not using your credit will reflect that you don’t utilize the credit that is provided to you. Therefore it is important to have an active credit card. An easy way to maintain a low yet effective credit ratio is by setting and auto payment for something that you need to pay every month. This could be your rent, or mortgage and such things. This will not only ensure you have an active credit card but also make sure that you are not using your credit limit for shopping and exceeding the credit limit.
Avoid Having Multiple Active Credit Cards: If you have more than one credit card, and some of them are not in use then it is a good idea to close some of them. As mentioned earlier, you need at least one active credit card, but don’t have multiple as your debts will keep increasing and you will have to make multiple payments. Closing off some of the cards that are unused or paid off is another way in which you can manage your credit, and improve your credit score.
Try To Become Authorized: This is another way in which you can improve your credit score faster. You can become an authorized user by linking or adding your account to someone you know who has a good credit history and score. You might have a family member or a close friend who has an excellent credit score as well as a good credit history, and adding your account to theirs will help you boost your score. Lenders or banks will associate your account with theirs and this will increase trust. The person you choose to link your account with has to be a closely known and well-trusted individual. Having your account linked with theirs will eliminate risk factor for lenders and they will be more willing to grant you a loan.
Remember that if you have a default in your payments after adding your account to someone with a good credit score, this will not only affect your score but theirs too. So be extremely careful to make all your payments on time.
Report all of your Payments: If you are someone who has to make fixed monthly payments, such as rent, then make sure you report your payments. If you are regular and consistent with all your payments then it is a great idea to report it as that will reflect in your credit report. If you have multiple monthly payments, with which you are consistent and regular with will help maintain a positive credit history and increase your score. So, in case you make payments that are not reported, then it is advisable to report them to improve your score.
Increasing Your Credit Score By 100 Points or More
If you are truly determined, regular and thorough with all your payments and checking your credit report, you could even raise your credit score by 100 points or more. Setting a goal for how much you want to increase your score could also help you feel more motivated and encouraged to follow through all the steps and be more efficient when planning out different strategies to achieve that goal.
If you have a score of 650, you could set a goal to increase it by 100 or even 110 points to be able to measure the result with all the handwork you put into achieving it. Having a credit score of 760 or anywhere above 700 is usually considered a good score. Whereas, a credit score of 500 or below is usually considered a bad score. If you are working to raise the score then you could aim for a credit score of 700 or even a credit score of 760. Having a credit score of 760 puts you in the good score category, and it also makes it easier for you to achieve a score of 800 which is considered excellent.